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 3-month period ended April 30, 2023. During remarks by IDT's Chief Executive Officer, Shmuel Jonas, all participants will be in a listen-only mode.

[Operator Instructions]. After Mr. Jonas' 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 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, 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 SEC. I will now turn the conference over to Mr. Jonas..

Thank you very much, operator. Welcome to IDT's earnings conference call. After my remarks, Marcelo Fischer, IDT's Chief Financial Officer, will join me, and we'll be available to answer questions. My brief remarks today focus on the third quarter of our fiscal year 2023, the 3 months ended April 30.

For a 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 and Exchange Commission on Friday.

For the third quarter of our 2023 fiscal year, IDT generated year-over-year increases in gross profit, adjusted EBITDA and EPS, highlighted by the continued expansion of our 3 high-growth, high-margin businesses and by the relatively resilient cash flow from our Traditional Communications segment even as revenue from this segment continued to decline.

NRS added new POS terminals and payment processing accounts at a record pace this quarter and achieved solid year-over-year increases in all 3 of its recurring revenue verticals as well as in recurring revenue per terminal.

Advertising revenue decreased sequentially due to seasonal reductions in demand and the advertising industry's pullback, particularly in the digital out-of-home segment.

Behind the scenes, we're enhancing our advertising platform and diversifying our network partnerships to pursue new opportunities, both within and outside of the digital out-of-home market. This foundational work should pay off when advertising demand rebounds.

Given our success in accelerating the pace of new payment processing account sign-ups, increasing merchant services ARPU and bringing new premium features to our platform, we expect that NRS will continue to perform extremely well. At net2phone, we increased subscription revenue by 20% year-over-year while approaching cash flow breakeven.

In the coming weeks, we expect to launch exciting new offerings and features that will help to build our momentum, including net2phone AI, which includes powerful analytical tools powered by artificial intelligence technology. At BOSS Money remittance, volume increased by 38% year-over-year, driving a 29% revenue increase.

I'm especially pleased by the robust growth of BOSS Money's retail channel over the past few quarters. Throughout the rest of the BOSS ecosystem, the synergies between retail and direct-to-consumer drive better economics than we could achieve with a single approach. We believe that the same will be true for the money remitted.

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 and with no debt, IDT is positioned to continue delivering solid results across a wide variety of economic conditions, while returning value to our stockholders.

Before 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. Now Marcelo and I will be happy to take your questions..

[Operator Instructions]. Our first question comes from [Alex Rohrer] (ph)..

Can you hear me?.

Yes, we can..

So just quickly this morning, the NRS Insights report showed 25,000 terminals currently, which implies a really strong month of May, so like 1,000 net adds at the month of May.

Just wondering, was there anything particular occurring in the month of May that would have led to unusual strength?.

Alex, it's Marcelo. So you're right. You're reading things carefully. It's mostly because of rounding. May have been our best month ever for adding POSs into the network. But it's mostly rounding. We added more like 630 new POSs on a net basis. And because of rounding, it makes it looks like it's 1,000. But it was our largest increase ever at the moment..

Understood. And just shifting gears to mobile top-up. Cuba, I think at this point, we've been dealing with this for a long time.

But what's driving the continued declines in the business? And is there some point at which you would expect the business to resume growing year-on-year?.

Yes. 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 in it to have volume and some players that really come into the market and disrupt it, really not looking for profitability, maybe even they're losing money.

And we've decided to sort of take, 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, our direct-to-consumer channel and our retail channel have been relatively stable.

So it's much more of a situation in the wholesale side of the business than it is in those two, but we have a bunch of new enhancements coming out both in retail and in direct-to-consumer that we expect to help increase growth as well as some new marketing campaigns.

And our new Zendit platform, we hope, will help with the deterioration that we've seen in wholesale..

The next question is from David Polansky..

David Polansky from Immersion Investments. I want to start, big picture, talking about NRS and poking kind of around how big this thing can get. I mean we've been sitting on sort of a unit TAM figure for NRS at about 200,000 retail locations.

And just looking at market share data for a lot of your states, so I think New York and California, I think you have roughly a 25% market share. And I think New Jersey, I mean, correct me if I'm wrong, but I think it'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 nationwide, which would put you somewhere in sort of the 50,000 unit range?.

Well, I mean I'd say 2 things. Just from walking around, I don't feel like we have 25% or 30% market share yet, but I hope to be there one day. That's in the New York, New Jersey area where I walk around more frequently. But again, the 200,000 number is really a very hard number to put our finger on it.

I mean, again, more and more, we sell into stores that I wouldn't have thought would have been typical for NRS locations, whether or not it's beauty or dollar stores or general services, so auto parts stores, et cetera. And so I think like the TAM is a little bit of a moving target.

So I don't know if that's really our gating factors, what percentage of that number we'll get. I think we have to continue to provide great service and great new products, and we'll continue to grow and continue to expand our sales channels. And again, we are doing that aggressively. You can see a little bit of that in the SG&A.

And we expect to see the number of units increasing quite substantially over the next couple of months and, hopefully, long past that. But I think you'll start to see that May number ramp up..

Great. You mentioned, I mean, you're seeing increasing success in areas outside of your core C-store bodega channel.

I mean how material is that at this point? Are you willing to discuss like is that like 10% of the 1,500 to 1,600 that you're doing? I mean is it really material at this point?.

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 to know from the sales, which is more recently, how many of them are outside of our traditional stores. So I don't want to give you an answer definitively..

Okay.

And then apologies for the mundane question, Marcelo or Shmuel, could you help us understand sort of the seasonality in the NRS business? Like, will Q3 EBITDA margin always be lower than Q2? Is Q4 going to 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 is we had a relatively weak advertising quarter. And advertising is our highest margin contributor at NRS, so that definitely hurt this quarter in particular. Yes, I do think that there is some seasonality to the numbers. It's not dramatic, but there is some.

And again, sometimes we sell more accounts then come online. So I think this particular quarter, we had a very strong quarter in terms of merchant processing sales, but a lot of that actual volume probably doesn't come on until this quarter. So I think you'll see a much better number next quarter.

And again, our sales are increasing, so that will continue to be better and better..

Great. And I have to ask on the capital markets 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 net2phone or NRS monetization? Or is that sort of a wait and see?.

For the time being, it's a wait and see. I mean, again, we're continuing to make those businesses significantly more mature than they were, and hopefully, at the right time, great value will be achieved..

The next question is from [Brian Warner] (ph)..

A private investor. Actually, David pretty much asked one of my questions, and that was really around the total available market.

I'm wondering, just as an aside on that question, do you view the restaurant area as a potentially large area, and I'm wondering what progress and what you might call out as any areas that are particularly enticing in terms of what sort of the size of the market and where you think you can get good economics? And then just final question, NRS, you seem to be reporting monthly sales that are certainly low to mid-single digits better than the industry, which is recurring with a lot of frequency.

I'm wondering what you think that is from and if that sort of become a selling point for you guys or if you think it's more of an anomalous thing..

I would say I think two or three things. I mean, first on the restaurant industry POS world, I'll call it, I mean we do not have any intentions of trying to become a toast or something like it. Like, that is not our goal at NRS.

We do have a goal of serving small restaurants that wouldn't be maybe the best fit for a solution like toast as well as to serve convenient stores that sort of have 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 start getting, I'll call it, Virginia and beyond, you'll start to see a lot of stores that have a restaurant component to it. And we definitely do intend to continue to serve that market better and better. We're in the process of making a small acquisition that hopefully will help us with that.

As far as your question regarding sort of sales at our stores being better than in the market generally, listen, I don't know enough about same-store sales everywhere else to know exactly how they compare, but it does seem to me like what you said is correct 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 some of that, as you know, from help they get from us.

But other factors of it is the fact that like we've always felt that when people stop going to a grocery store and getting their orders delivered to their house, that's the customer that, that grocery store really loses most of the time. Maybe they come in there, one out of every three times they would have gone.

But they end up needing small stores like the ones that we serve even more often because now they're depending on them for items that they didn't beforehand. So I think that, that has something to do with it. Marcelo also has some thoughts on [Indiscernible] at NRS..

Yes. I mean, obviously, we also look at the national data and compare them to NRS data. And we also kind of scratch our heads somehow a little bit. And I think we speculate that also our customers, they are going into this independent retail store to buy a lot more of what their needs are, okay, basic needs type of goods.

And therefore, they'll do the more recurring transactions part of the strategy. So maybe that's also what's triggering why the growth is a little higher..

The next question is from Adam Wilk..

This is Adam Wilk with Greystone Capital.

Can you hear me?.

We can hear you well..

I just had a few or maybe a couple of questions wrapped up into one for net2phone, really strong results there 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.

But I just wanted to touch on maybe the sources of operating leverage that you're seeing, if anything has changed year-to-date, I'll say. And then maybe you can talk a little bit about Bridgepointe.

Is there a channel partner, correct, and then maybe 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 since the annual meeting in terms of our focus that we described for net2phone then quite thoroughly. Again, I think that the team at net2phone has really executed very well, and they've really made the cash flow generation a very big part of what they focus on.

At the same time, they've really taken the bull by the horn and focusing on areas that we see massive growth coming down the line, whether or not that's AI that everyone is talking about or CCaaS products. Even CCaaS for small customers have those kinds of needs as well, and we have a product coming out specifically for them.

We try to take some of the learnings that we've seen sort of also in other parts of the business. So NRS, like we've been very good at selling into stores with a very low price, easy offering to take it to 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 at net2phone as well where we come in there, being a relatively low-cost provider for their UCaaS services but then adding on all of these much higher tier, I'll call, products, again, whether or not it's CCaaS or call intelligence or et cetera, et cetera.

I would say the only thing that's changed is maybe more of a focus on growing the base with more revenue rather than just growing the number of customers.

Now in terms of answering your question about our channel partners, we are a channel-based business in net2phone as opposed to an NRS where we have really a very diverse strategy of direct channel as well as through IDT salespeople. And net2phone, with the exception of Canada, it's really a channel of business. And that's not changing.

But when it comes to adding revenue on to the customers, some of that does become a direct sale from net2phone, depending on whether or not the channel partner feels, I'll say, sufficiently trained in being able to sell it.

So some of our newer products really require a different type of a sale than some of our channel partners traditionally have done. I mean UCaaS and CCaaS are not necessarily sold by the same people, if that would be a way to explain it easily..

Yes. Adam, I think to the operational leverage, when we decided to postpone the net2phone about 1 year ago, and we mentioned at the time that the focus was going to be turnaround and demonstrate that net2phone can be a growing and profitable company.

So this past year, there was tremendous focus by the net2phone team on making the yield efficiencies, on trying to show that we're going to be able to get the company to be cash flow positive. And that we think we will start the new year being cash flow positive, even covering all the CapEx expenses that they incur.

And now that we have achieved that or going to achieve that, the focus, as Shmuel mentioned, is going to be more growth towards bringing to market new products. CCaaS to play a bigger role as time goes by. It will help to guide ARPUs slightly higher. It's kind of a bigger part of the mix.

So I think that's going to be the focus for this coming year, the things right now, working on the budget for this coming year. And I think that will continue to be now a growing company but also a cash flow generator in the next year..

Okay. Yes, 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 sits in front of you. One quick question, just from your combined answers, is the U.S.

for you guys, who are kind of less on the enterprise side, is that more of a channel market for you? Or is that more direct as you kind of increase your efforts there?.

Yes. I mean the U.S. has been almost, until recently, a channel business. We have very little direct sales. Most recently, we started a new group to sell directly to larger enterprises. We just started about a few months ago. We're probably going to be adding more resources into that group as we go into this coming year.

And that group has already got in about 1 client with about 4,000 seats. So going forward, we're going to have a direct group for trying to onboard larger enterprises..

Okay. Great. And then just in terms of Mexico, this may be jumping the gun, but there's a lot of talk about near-shoring opportunities or re-shoring opportunities. And I think there's a lot of bullish commentary just regarding the growth of that country in general in terms of the economy.

And I'm curious as that takes place, does that sort of increase the opportunity set for you guys there? Or has anything changed on that front for that specific geography? Is there anything to sort of share at this point?.

It's interesting. I mean Marcelo is sort of smiling as you were asking that question because we were talking about it this morning. And again, I do think that that's going to be a big area of growth. It has been already. But I think it will continue to be even bigger.

The near shoring definitely helps net2phone, there's no question about it, particularly when it's done in Mexico. Although we are looking to extend other, I'll call them, nearshore markets..

We have a follow-up coming from ..

Just a quick question, you guys seem to have pulled the rabbit out of hat. So a lot of times with Traditional Communications and despite the obviously significant revenue headwinds, the EBITDA has held up remarkably well for what is generally viewed as a rapidly shrinking ice cube.

And I'm just wondering if there's any reason to think that you can continue to milk that business for quite a few years or if you think maybe, over the next couple of years, if there's anything to sort of watch out for that could sort of be a clip in your cash flow there? And a follow-up question, if you want to be generous with a thought.

I'm wondering where you think net2phone or, for that matter, a well-run UCaaS company at maturity, and you can define it or not, what sort of EBITDA margin do you think that business is? Is it 20%? Or is it something significantly different than that, in your mind? Just curious about the thought you might share..

Again, we have a model on the net2phone business that showed something a little better than that over time. I mean we're not getting there next year. That's for sure. But again, it will be better than that. As far as our traditional business, listen, we have to continue to make painful cuts to sustain the cash flow from that business.

And that's never fun. And at the same time, we need to continue to develop features that keep our customers willing to pay for our services when, oftentimes, they can get it free somewhere else. And that's a struggle that we deal with every day. You've seen the reality in the numbers. So we do our best to continue going as long as we can. ..

But we do expect as we look ahead for our long-distance voice revenues to continue to decline most likely at the current pace. We don't see any turnaround in that trend. Actually, we're trying as hard as we can to manage the cost structure, to try to alleviate the impact to the bottom line. But that becomes harder and harder as time goes by.

So I do expect, right, that the gross profit, the EBITDA for long-distance voice to continue to decline at the same rate and maybe at an accelerated rate as time goes by. And we hope to be able to offset some of that decline with the stronger performance by IDT digital payments with our mobile top-up offerings and other digital offerings..

[Operator Instructions]. 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..