IDT - NYSE

Good evening. Welcome to the IDT Corporation's First Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please note, this conference call is being recorded. I will now turn the call over to Bill Ulrey of IDT Investor Relations. Bill, you may begin.

Thank you, John. In today's presentation, IDT's Chief Executive Officer, Shmuel Jonas; and Chief Financial Officer, Marcelo Fischer, will discuss IDT's financial and operational results for the 3 months ended October 31, 2025. After their remarks, they will be happy to 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 in 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, 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. Now I'll turn the call over to Shmuel for his comments on the quarter's results.

Thank you, Bill. And thanks, everyone, on the call for joining this evening. IDT delivered consolidated revenue growth and record levels of gross profit, adjusted EBITDA -- and adjusted EBITDA in the first quarter. NRS led top line expansion, while all 3 of our growth segments reported strong bottom line results. Our Traditional Communications segment again provided steady cash generation. NRS recurring revenue increased 22% year-over-year, helping to drive a 35% increase in income from operations and a 33% increase in adjusted EBITDA. This quarter, we continue to launch and build out innovative premium services, delivery integrations, couponing and product data scan programs to name a few. Our premium offerings are becoming important growth drivers and factored into the large increase in average recurring revenue per terminal this quarter. There is tremendous opportunity for additional long-term growth through innovation, both in NRS's current and adjacent markets. At BOSS Money, our digital channel continues to outperform retail and that churn may accelerate as implementation of the new federal excise tax on cash remittances begins on January 1. The Fintech segment's income from operations and adjusted EBITDA nearly doubled year-over-year, aided by BOSS Money's increasing operating leverage and enhanced profitability of other smaller fintech initiatives. Our push to integrate tailored AI and machine learning into BOSS Money customer service and fraud detection activities have helped to significantly improve unit economics. Looking ahead, we will soon introduce the first integration of the BOSS Wallet, enabling our U.S. customers to share money and receive rewards. During the quarter, net2phone began offering its AI agent to both our existing and new customers and added our Coach AI solution at quarter's end. Increasingly, our customers are ordering multiple net2phone offerings to enhance their operations and streamline workflows. As a result, we have pivoted from stand-alone product offerings to holistic solutions comprised of multiple offerings tailored to customers' communications and workflow needs. This approach plays net2phone's product and distribution -- plays to net2phone's product and distribution strengths and we are very excited about the potential as we continue to add new AI solutions. On a final note, the Delaware Supreme Court in a ruling issued yesterday affirmed the decision of the Court of Chancery dismissing all claims against IDT in the Straight Path class action suit, and we are very pleased that this case has now been favorably resolved. I don't usually do this, but I would like to thank a couple of people in particular. I would like to thank Jason Cyrulnik and Paul Fattaruso and Rudy Koch, as well as our own, Menachem Ash. I would also, on a sad note, like to remember our esteemed colleague, Suzy Sillman, who led the data division of NRS and worked tirelessly for NRS even while very sick and in lots of pain and unfortunately, has departed. I will wrap up by thanking everyone on the IDT team for their hard work and another great year and wishing them and all of you on the call a very joyous holiday season. Now Marcelo will discuss our financial results.

Thank you, Shmuel. My remarks on the fourth quarter of our fiscal year 2026 will focus on the year-over-year comparisons to set aside seasonal impacts on our business. From a financial perspective, this was a terrific quarter, highlighted by good top line growth, record gross profit and record adjusted EBITDA and adjusted EBITDA margin. Consolidated revenue increased 4% to $323 million, driven by our 3 growth segments: NRS, Fintech and net2phone, which together grew by 16%, with particularly strong contributions from NRS and Fintech. Consolidated gross profit increased 10% to a record $118 million for a gross margin of 37% as we continue to benefit from the increasing contributions of our 3 higher-margin growth segments relative to that of our low-margin Traditional Communications segment. Consolidated income from operations increased to $31 million, a 31% year-over-year increase. Adjusted EBITDA and adjusted EBITDA margin also hit record levels at $37.9 million and 11.7%, respectively. EBITDA less CapEx totaled $32.1 million in the first quarter, a 30% year-over-year increase and also an IDT all-time high. EPS increased by 31% or $0.21 to $0.89 per share on both the basic and diluted basis. Non-GAAP diluted EPS also climbed by 32% to $0.94 from $0.71. As Shmuel pointed out, the big driver in the first quarter was again our 3 growth segments. Together, they contributed $103 million in revenue, equal to 32% of our consolidated revenue compared to 29% a year earlier. But because the average gross margin is 66% compared to 18% in our Traditional Communications segment, they provide tremendous operating leverage as the revenue contribution increases and the cost structures continue to be optimized. Adjusted EBITDA from NRS, Fintech and net2phone combined totaled $21.4 million in the first quarter, a 50% increase from the first quarter of fiscal 2025. Together, they now represent 57% of our consolidated adjusted EBITDA compared to only 48% 1 year ago. And because these segments still generate less than 1/3 of our revenue, that rotation from low-margin businesses to higher ones still has a long way to run. This being said, given the quite solid and consistent profitability results delivered by our Traditional Communications segment, we believe that the largest segment of ours will continue to be a major contributor to our adjusted EBITDA generation for years to come. Now let's take a closer look at each of our segments. At NRS, results were highlighted by the very strong increase in the monthly average recurring revenue per terminal to $313 from $295 in the year ago quarter as a result of the strong revenue growth in merchant services, which is up 38% and SaaS fees up 30% that more than offset the 15% decline in advertising and data revenue. Merchant services revenue this quarter continued to benefit from consumer and retailer trends that we believe will drive long-term increases in payment processing revenue per account. Overall, NRS's recurring revenue climbed 22% to $35 million. Income from operations in the first quarter increased 35% to $9 million, primarily reflecting a 21% increase in gross profit, while adjusted EBITDA increased 33% to $10.3 million. In our BOSS Money remittance business, revenue growth at our dominant digital channel, which generated 84% of our transactions during the quarter, was 20%. Although revenue growth has slowed, we continue to take market share from our peers, many of whom, especially the retail-centric providers have seen revenues from U.S.-based remittances decrease in recent quarters. Income from operations in the Fintech segment, which includes also our Gibraltar-based bank and other smaller financial businesses and offerings increased 97% to $6 million, and adjusted EBITDA climbed 87% to $7.5 million. These exceptional increases reflect the reduction in our transaction cost structure that machine learning and AI are providing, the increasing operating leverage of the business and the improving profitability of the other businesses within our Fintech segment. Fintech's adjusted EBITDA margin climbed to 18%, and BOSS Money as a stand-alone entity would likely have achieved several percentage points above that, an impressive accomplishment that stacks up favorably in comparison to the larger, long-established players in the remittance industry. With the recent launch of its AI offerings, net2phone is transitioning its focus away from the per-seat metrics we have traditionally used as a key indicator of the performance of this business. As Shmuel just noted, net2phone customers are now increasingly looking for communications and operating solutions comprised of multiple offerings. So in order to better capture and report this new dynamic, over the next year, net2phone will begin reporting new customer-based KPIs that more meaningfully track the performance of customers -- of customer economics as opposed to per-seat economics. For now, however, seat growth remains a key performance indicator. And this quarter, seats increased 7% to 432,000, while revenue increased 10% on a net reported basis and 9% on a constant currency basis. Revenue growth outstripped seat growth in part because of some nice win for our higher-value CCaaS offering. Income from operations increased 94% to $2 million in the first quarter, while adjusted EBITDA increased 44% to $3.6 million. EBITDA less CapEx increased 104% to $1.9 million. Net2phone was able to achieve all of this, while at the same time ramping up its investment in strategic AI technologies. Looking ahead, net2phone expects to further increase its investment in technology development as it build out integrations and features for new verticals, such as health care. For our Traditional Communications segment, this was another very good quarter, exceeding our expectations. Income from operations again increased, up 1% year-over-year to $16 million. Adjusted EBITDA increased 2% year-over-year to $18.9 million as modest decreases in gross profit were more than offset by our ongoing efforts to reduce OpEx in our legacy paid minutes businesses. Adjusted EBITDA less CapEx for this segment increased 1% year-over-year to $17.3 million, indicating once again the durability of this segment's free cash flows. Turning to our balance sheet. At October 31, 2025, IDT held $220 million in cash, cash equivalents, debt securities and current equity investments. This represents a decrease of $34 million compared to the $254 million held at July 31. This reduction mostly reflects the fact that our first quarter fiscal '26 ended on a Friday compared to last quarter, which ended on a Wednesday. As I have mentioned in previous calls, as part of our weekly process of funding, weekend transactions for our BOSS Money remittance business in any given week, our highest cash balances are typically on Wednesdays and our lowest on Fridays. During the first quarter, IDT also repurchased $7.6 million in stock. We expect to opportunistically buy additional shares during the remainder of our fiscal year and to return cash directly to our stockholders through our quarterly dividends. To conclude, after generating $38 million in consolidated adjusted EBITDA this quarter, representing a 26% year-over-year growth, IDT is extremely well positioned to achieve our full year '26 adjusted EBITDA guidance of $141 million to $145 million, which would represent a 7% to 10% full year-over-year growth rate. For now, we will monitor Q2 performance and update our guidance when we report our next quarterly results, God willing, in early March. Now Shmuel and I would be happy to take your questions.

Yes. I mean I think that they're doing a great job all around bringing lots of new and interesting solution to our carrier partners all around the world, whether or not it's SMS solutions, voice solutions, some of even our new AI solutions that we're using in net2phone are being, I'll say, offered to carriers as well. And they've really done a great job all around.

Yes. And Iñigo, as we maybe have spoken before, when we manage our IDT Global wholesale carrier business, our account managers are incentivized to manage it in terms of generating maximum gross profit. On any quarter, revenues might go up or down depending on whether they chose the opportunities in a high revenue per minute country or a low revenue per minute country by high margin, low margin. So the IDT Global folks are doing exceptionally well in the sense that despite that the minutes business have been in decline now for so many years, they have consistently delivered what we look from a managerial perspective, about $9 million to $10 million of GP or gross profit every quarter for now several years, despite the declines in the minutes, right? So the fact that the revenue has grown in the last 2 quarters, it's just a small indicator, okay, on the resilience of the business. And the revenues could come down, but for us, the focus is really that the gross profit continues to be maximized as much as possible.