Shmuel Jonas - CEO Marcelo Fischer - SVP Finance & CFO.

John Rolfe - Argand Capital.

Hello and welcome to the IDT Corporation’s Second Quarter Fiscal Year 2016 Earnings Conference Call. During management’s prepared remarks all participants will be in listen-only mode. [Operator Instructions] After today’s presentation by IDT’s management, there will be an opportunity to ask questions.

[Operator Instructions] In today’s presentation, Shmuel Jonas, CEO of IDT Corporation will discuss IDT’s financial and operational results for the three months ended January 31, 2016.

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 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 that will follow, IDT’s management may make reference to the non-GAAP measures, adjusted EBITDA, non-GAAP net income and non-GAAP diluted EPS. A schedule provided in the earnings release reconciles adjusted EBITDA, non-GAAP net income, and non-GAAP diluted EPS to the nearest corresponding GAAP measures.

Please note that the IDT earnings release is available on the Investor Relations page at the IDT Corporation website, www.idt.net. The earnings release has also been filed on a Form 8-K with the SEC. I would now like to turn the conference over to Mr. Jonas..

Thank you, operator. Welcome to IDTs second quarter fiscal 2016 earnings conference call. My remarks today will focus on key operational and financial results for the three months ended January 31, 2016. Throughout my remarks, unless I indicate otherwise, I will compare the second quarter’s results to the year ago quarter.

For a comprehensive and detailed discussion of our results, please read our earnings release issued earlier today and our Form 10-Q, which we expect to file with the SEC by March 11.

Following my remarks, Marcelo Fischer, IDT’s Senior Vice President of Finance and IDT Telecom’s Chief Financial Officer will join me and we will be glad to take your questions. I’m going to start by talking a bit about Zedge, since its top of mind for many of our investors.

We intend to file the information statement for the Zedge spin-off later this month and complete the process before the end of our fiscal year. Zedge had a fantastic quarter, generating record levels of revenue, adjusted EBITDA and income from operations.

Revenue climbed to $3.5 million in the second quarter from $2.4 million in the year ago quarter and $2.6 million in the prior quarter. The year-over-year increase reflects continued growth in users and user engagement while the seasonal increase reflects these factors as well as increased advertising demand around the holiday season.

Zedge’s adjusted EBITDA increased to $1.6 million from negative $382,000 in the year ago quarter and more than doubled compared to Q1. These accomplishments reflect Zedge’s scalable business model, whereby increases in revenue flow to the bottom line without commensurate increases in cost.

Turning now to IDTs consolidated results for the second quarter. We achieved year-over-year increases in adjusted EBITDA, income from operations and earnings despite having lower revenue. Sequentially however, revenue, adjusted EBITDA, income from operations and earnings declined.

Consolidated revenue was $382.5 million for the quarter, compared to $394.2 million in the year ago quarter and $390.6 million in the prior quarter. The year-over-year and sequential declines primarily reflect fallout from the deregulation of the Mexican telecom market that we have discussed previously.

Our TPS segment within IDT Telecom accounted for 98.5% of IDT’s consolidated revenue this quarter. Our largest vertical in TPS Retail Communications generated revenue of $168.6 million, a decrease from $182.6 million in the year ago quarter and $173.7 million in the prior quarter.

Within Retail Communications, sales of IDT’s flagship Boss Revolution international calling service, which is the dominant offering in the Retail Communications vertical, declined 1.8% year-over-year and 1.3% sequentially. This also primarily reflects the impact of Mexican rate deregulation that we discussed previously.

We have left our rates on this route mostly unchanged. As a result of our pricing strategy, we have accepted declines in minutes of use and revenues from this quarter while softening the impact on our margins and bottom line.

We expect the impact of the Mexican Rate deregulation to likely dissipate in the coming quarters, even as some of our remaining customer base in this quarter continues to migrate to lower cost offerings including our own Mexico Unlimited an in-app calling plans. Excluding the U.S.

to Mexico corridor, Boss Revolution’s calling service revenue increased 5% year-over-year and was flat sequentially suggesting that this particular service is ensuring and its revenues have probably reached a peak.

Nevertheless Boss Revolution calling service will continue to be hugely important business for IDT and we intend to leverage its popularity and strong brand for years to come. That is one of the reasons why I’m very excited about the new Boss Revolution App that is now scheduled for release this spring.

The new app will enhance the user experience, provide a wider range of services including messaging and peer-to-peer calling with other very exciting features to be added in feature releases.

I have a Beta version of the app installed on my phone now and I have to say that our teams in Newark, Lakewood, Finland, and elsewhere have collaborated on this project in an amazing way.

Our new app provides all the functionality of the best-in-class OTT services like WhatsApp and integrates them with the Boss Revolution calling and payment services sleekly and intuitively.

Interesting in recent months we have seen the current app's adoption rate pick up as we expand calling options to additional countries and differentiate features geographically. Against this backdrop it is clear to me that the new Boss Revolution app will quickly become a very popular and rapidly growing part of our business.

Also beginning this summer, we will roll out a new Boss Revolution retail platform for our extensive national network.

In addition to Boss Revolution’s calling service and international airtime transfer, this new proprietary platform will allow retailers to also sell both domestic and international bill payment services as well as international money transfer and many other services more quickly and efficiently.

Our significant investment in this new retailer platform represents and is reflective of our commitment to grow our already sizable retailer network while enhancing the services we offer at our retail partners. Our retail network remains a key market differentiator and the source of IDT Telecom’s long term value.

Turning to other verticals, wholesale carrier services revenue increased year-over-year to $147.2 million even as South American exchange rate driven arbitrage opportunities that we have discussed in prior periods virtually disappeared and I must commend our wholesale carrier team who has done a great job of delivering consistent results despite market headwinds.

Later this spring, our wholesale carrier team will also launch a beautifully redesigned new portal that will make it more convenient for both large and small players to utilize our wholesale services. The new portal will be available both on mobile and desktop.

Revenue in our payment services vertical climbed to $53.3 million from $49.8 million in the year ago quarter, but decreased from $55.5 million sequentially.

International airtime top up remained by far the largest component of payment services revenue, but this vertical also includes our emerging payment initiatives including international money transfer. We're continuing to invest significant resources to grow this business and I want to give you a quick update on our progress.

While it is too small to be impactful to TPS as a whole, I am encouraged by the strong increases we've experienced in international money transfer volumes to our retailer network in recent months.

Our team has clearly raised the level of its game and I have no doubt that our International Money Transfer business will become increasingly impactful to IDT in the coming months and years.

In the second quarter, we also expanded our presence in this space by introducing online money remitting services on the Boss Revolution mobile platform and website. If you haven’t used it yet, please give it a try. The remaining vertical in our TPS segment Hosted Platform Solutions generated revenue this quarter of $7.7 million.

This segment includes our Net2Phone business communications division, which is a high growth business that we're targeting with significant investment and resources. I mentioned last quarter that Net2Phone is developing a new unified communications platform.

Phase one of the platform will offer free inbound cloud PBX service called PickUp with paid premium features. PickUp is great entry point for startups and small business searching for an affordable feature rich telephony offering that can grow as their business grows.

We expect to launch PickUp next month and I again want to commend our Net2Phone team for doing a wonderful job on it. Meanwhile Net2Phone’s new hosted PBX service offering, Net2Phone office has been meeting its growth target for this fiscal year and we expect it to ramp up significantly in the coming quarters.

On a consolidated basis, IDT’s adjusted EBITDA increased to $11.7 million from $8 million in the year ago quarter, but decreased from $13 million in the prior quarter. TPSs increased adjusted EBITDA to $11.3 million from $11.1 million in the year ago quarter, but it decreased from $14.1 million in the prior quarter.

On a consolidated basis, the year-over-year EBITDA increase largely reflects our effort to right size overhead. I’m pleased that we reduced consolidated SG&A expense to $51.1 million from $67.4 million in the year ago quarter and $53.1 million in the prior quarter.

The SG&A level we achieved this quarter was the lowest in at least three years and reflects among other things decreases in employee compensation from reductions made in fiscal 2015. Within the aggregate SG&A total, we decreased corporate G&A expense to $2.1 million from $2.8 million in the year ago quarter.

As a percentage of revenue less direct cost, aggregate SG&A expense decreased to 81.4% from 87.7% in the year ago quarter but increased from 80.4% in the prior quarter.

Moving to the bottom line, net income attributable to IDT increased to $4.1 million from $2.5 million in the year ago quarter, but decreased slightly from the $4.2 million we achieved last quarter. Diluted EPS was $0.18 this quarter, an increase from $0.11 in the year ago quarter and unchanged from the first quarter.

Looking ahead, we're committed to invest significantly in long-term growth initiatives throughout the company. We believe that in their totality, these and other initiatives in the pipeline have very promising growth prospectus and will gradually transform our business. We're also as always committed to operate more efficiently.

During the quarter, we repurchased $4.6 million of IDT Class B common stock on the open market, which is over 1% of the float. Also during the quarter, we paid $4.4 million in dividends to our shareholders and subsequent to the quarter close declared a $0.19 per share dividend for the second quarter, which we paid on or around March 25.

That wraps up my discussion of the quarter's financial and operational results. Now Marcelo and I would be happy to take your questions. Operator, back to you for Q&A..

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from John Rolfe at Argand Capital. .

Hey, guys. Couple questions for you. First on Zedge, could you just explain a little better, Zedge's profitability in the quarter was fantastic.

I’m just trying to understand how the EBITDA growth sequentially in aggregate dollars was actually greater than the revenue growth? Presumably there were some expenses that were running through previously that you were able to carve out or put a stop to this quarter, but what were sort of the underlying dynamics there?.

I guess it’s exactly as a you stated in the question, there were some expenses that were one-time in the past quarter that didn’t end up this quarter..

Hi John, it’s Marcelo. Also bear in mind that most of the cost that Zedge incurs occur in their hub, which is in Norway. So most of their expenses are Krona denominated..

Okay..

On the flip side, most of the cash flows are from sales that happens still in the U.S. which is dollar denominated. And therefore when the dollar is strong, it really helps the P&L..

Okay. Okay. Got it.

And can you talk a little bit about where you guys stand in terms of getting some of the issues with the Apple iTunes store resolved? I guess they've had some issues in terms of Zedge's remaining compliant with some of Apple’s terms and I know you guys have been working to get that resolved, but just wondering if you have any sense on timing there..

We submitted the new [F] yesterday. And we expect it to be approved..

Okay. Okay. Great. That's good news. And then secondly, in terms of TPS, look I understand the concept behind negative operating leverage and why you saw a sequential decline in EBITDA as a result.

But I’m just trying to understand what was different in terms of Q1 to Q2 versus Q4 to Q1 because in Q4 to Q1, you were also experiencing the headwinds in the Mexican Corridor and you had some aggregate revenue declines, but you were still able to maintain and even increase your EBITDA.

So what was the difference in the dynamics between those two quarters or those two sets of quarters?.

Yes we -- the large amount of the decrease relating to Mexico impacted us a lot more year-over-year and sequentially as we came into Q2 and that kind of -- and that was offset by some extent by -- in Q1, we had more of a growth on all those regions to offset some of the Mexico decline.

As we went into Q2 the growth in the other regions was basically flat and therefore we felt the impact of the Mexico Corridor rather decline a little stronger.

On the flip side, as it comes to SG&A, our SG&A in Q2 was significantly lower than Q1 as we continue to feel the impact, the positive impact of some of the cost cutting and other initiatives that we have put in place already a couple of quarters ago. So that net-net of EBITDA came out pretty close to what we saw in the previous quarters..

Okay. Okay. Got it.

And then lastly, can you just repeat what did you say your expectation was on the timing of the full roll out for the Boss Revolution App?.

We’re hoping that it will be rolled out in the next two months. I have as I said, I have a Beta Version of it on my phone right now, but it’s going through Q&A and testing and we got to make sure it's solid before we release it..

Okay. Okay. Great. Thanks very much guys..

[Operator Instructions] This concludes our question-and-answer session and conference call. Thank you for attending today’s presentation. You may now disconnect..