Shmuel Jonas - CEO.

John Rolfe - Argand Capital.

Good morning and welcome to the IDT Corporation's Second Quarter Fiscal Year 2017 Earnings 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 3 months period ended December 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 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 IDT earnings release is available on the Investor Relations page of the IDT Corporation website, www.idt.net. The earnings release has also been filed on a Form K-8 [ph] with the SEC. I would now like to turn the conference over to Mr. Jonas. Please go ahead..

Thank you, operator. Welcome to IDT's second quarter of fiscal 2017 earnings call. My remarks today will focus on key operational and financial results for the three months ended January 31, 2017. Unless I indicate otherwise, results are for the second quarter of fiscal 2017, and are compared 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 on or about Monday, March 13.

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.

While we are still quite inline on the profitability and cash flow generated by our international long distance voice services we know and you know in order to continue to create value we have - as we have over the last few years we need to diversify our revenue streams.

We made a lot of progress in the second quarter building applications that allow for the scaling of that diversification. We also accelerated the development and investment in all our key growth initiatives.

We have introduced some exciting new products in the BOSS Revolution Money app with money remains as its flagship service and released the major update of the BOSS Revolution calling app, which now includes messaging and peer-to-peer calling.

The two apps now work in tandem to provide a seamless user experience and convenient access to many of our consumer voice and payment offerings. We also continued rolling out the new Boss solution retailer portal across our Nationwide network of stores.

This upgrade will make it much easier for retailers to sell all BOSS solution products and services. However our launch was not without hiccups, some of which negatively affected revenue. While this was disappointing I believe that the progress we are making will be well worth the short term pain.

At the core of our strategy is our ability to develop end market new offerings to meet the needs of our markets. Accordingly we have significantly increased investment in our in-house engineering team while opportunistically acquiring synergistic technologies that can be incorporated into our offerings.

In 2014 required HDmessaging whose technology is now a key component of our calling app. And this quarter we purchased LiveNinja, a massaging platform for businesses to create and manage their customer relationships. Their technology will soon be an exciting part of our unified communication-as-a-service or UCaaS offerings.

At the same time our longer term growth intimacies continued to scale up with impressive speed. Net2Phone UCaaS business has quadrupled its customer base since January of last year and we continue to invest in the growth of this business. National Retail Solution expanded its point of sale network tenfold over 2000 independent retailers and bodegas.

We are in sales and installation phase past thousands of more point of sale terminals fully deployed by year end. We are also proud to be working with some of the largest CPG companies in the world who see the benefit of our distribution, advertising capabilities and royalty program to help extend our reach into urban and ethnic markets.

Finally most recently, we started offering a retailers credit card processing and merchant cash advances.

Our direct-to-consumer money remittance business, which was launched just last spring has shown great promise, growing 80% over the last six months, and we expect its growth to accelerate further with the recent launch of our BR Money app and its integration into the BOSS Revolution calling app.

Financial results for the second quarter were fairly consistent with the recent trends. Year-over-year our cost cutting initiatives partially offset the impact to our bottom line resulting from the decrease in revenue. Sequentially we held revenue relatively flat while SG&A expense increased as we stepped up our investment in our growth initiatives.

We will be keeping a close eye on our overhead expense. At the same time we continue to support our growth initiatives. Second quarter consolidated revenue was $367.6 million, a decrease of $14.9 million year-over-year and $1.6 million sequentially.

The year-over-year decrease includes $3.5 million in revenue generated by Zedge in the year ago quarter prior to its spin off last June. In our TPA segment, retail communications revenue declined $13.7 million year-over-year and wholesale carrier services revenue is down $5.8 million over the same period.

However, wholesale carrier services has reversed that trend and posted two consecutive quarters of sequential revenue gains.

Both our retail and wholesale verticals have been impacted by longer term secular headwinds including increased competition from wireless operators as well as continued adoption of free over-the-top voice and messaging services including our own.

Year-over-year the decline in BOSS Revolution revenue generated by US to Mexico traffic accounted for roughly 30% of the decline in retail communications revenues. Sequentially however, revenue on net [ph] carrier was relatively stable.

Going forward, it will not be a significant factor as the revenue generated there now account for less than 2% of retail communication revenue. Moreover some of the marketing spend that was previously utilized to promote the US to Mexico corridor has now been refocused, most notably to focus on some growing African corridors with higher margins.

The impact of declining revenue in the low largest TPS verticals was partially offset by revenue growth in our Payment Services vertical. Payment Services revenue increased by $6.3 million year-over-year to $59.6 million.

However increased international mobile top up sales and the growth of our international money transfer business, these two payment offerings contributed approximately 15% of TPS revenue this quarter.

In the months ahead we expected domestic and international bill payment and certain additional offerings to round out for now our payment portfolio, as we begin to scale mass with a number of stores and agents where we offer these products.

Currently it's under 1,000 as we go through a BOSS Revolution payment service which is available on over 50,000 stores. Turning now to revenue from our second largest segment, our UCaaS segment also benefited from our focused investments.

This segment consists of net2phones enterprise offerings, including cable telephony, hosted PBX and SIP trunking as well as our recently launched PicuP business. UCaaS revenues increased by $1 million year-over-year to $7.1 million, a 16.7% increase. TPS' direct cost as a percentage of revenue increased 60 basis points year-over-year to 85.7%.

The Mexico situation and other headwinds facing our retail syndication and Wholesale Carrier Service verticals, pressured TPS' margin year-over-year. Sequentially however we were able to offset the margin erosion, decrease in TPS' direct cost as a percentage of revenue by 10 basis points.

Moving further down at income statement, SG&A decreased $3.7 million year-over-year to $47.3 [ph] million, as a result our ongoing efforts to streamline operations and reduce cost.

Sequentially there was an uptick of $1.9 million in SG&A reflecting higher non-cash compensation and accelerated investment in our growth initiatives, that as I stated earlier, we will keep a close eye on it. Adjusted EBITDA this quarter was $9.3 million, a decrease of $2.4 million from the year ago quarter and a $1.4 million decrease sequentially.

Income from operations decreased $3.2 million year-over-year and $2.1 million sequentially to $3.1 million. Diluted EPS was $0.04 compared to $0.18 in the year ago quarter and to $0.96 in the prior quarter, when we closed to the net benefit from income taxes of $14.4 million. Now Marcelo and I’ll be happy to take your questions.

Operator, back to you for the Q&A. Thank you..

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from John Rolfe of Argand Capital. Please go ahead..

Hey guys.

I think you said that you had - that the POS terminals in a 1,000 different locations at quarter end, was that correct?.

Actually, it's 2,000 stores..

Okay, it's in 2,000.

So can you talk a little bit about, I mean do you still have a meaningful backlog of stores that want those terminals and sort of how you see that business scaling up over the course of the rest of this year?.

We think it's going to scale very nicely. We do still have a backlog. I mean we’re actually unable to install as many as we have sold.

Hopefully we’re going to be hiring enough people to be able to deploy them a little bit quicker, but at the same time our sales keep increasing for the POS but we expect to end the year with a couple of 1,000 more units at least..

Okay. And then lastly, with the increased spend on some of these initiatives, would you expect that sort of corporate line item I think for the quarter it was a little over $3.5 million.

Would you expect that to remain relatively sort of stable or similar to that level for the rest of this year? Do you see sort of spending levels increasing even further at this sort of corporate line item?.

I definitely don’t see them increasing, I mean there is anything they will come down a little bit. But again, we are trying to scale this business as fast as we can..

Okay, great. Thanks very much..

Thank you..

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