IDT CORP — Call Transcript 2026

Speaker 1: Welcome to the IDT Corporation Second Quarter Fiscal 2026 Earnings Conference Call. All participants are now in a listen-only mode. A question-and-answer session will follow management's remarks. Anyone requiring operator assistance during the conference call should press *0 on your telephone keypad. Please note, this conference call is being recorded. I will now turn the call over to Bill Aurey of IDT Investor Relations. Bill, you may begin.

Speaker 2: Thank you, John. In today's presentation, IDT's Chief Executive Officer, Shmuel Jonas, and Chief Financial Officer, Marcelo Fisher, will discuss IDT's financial and operational results for the three months ended January 31, 2026. 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 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 adjusted measures, including adjusted EBITDA, adjusted EBITDA margin, non-GAAP earnings per share, NRS' 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.

Speaker 3: Thank you, Bill, and thank you to everyone who joined the call. NRS and Bosses Money and Net to Funds top and bottom lines expansion drove IDT's strong overall results again this quarter. NRS recurring revenue grew year over year, powered by large increases in merchant services and SaaS fee revenues. This quarter, we continue to make progress on initiatives to drive additional merchant services and SaaS growth and expand our delivery partnerships. We are also developing offerings for differentiated retailer verticals. Advertising and data results came in lower than we expected after decreases in CPM rates pressured revenues. At Boss Money, our digital channel continued to outperform relative to the industry as transactions increased 17% year over year. The new federal remittance tax, which applies mainly to transactions originated with cash, went into effect on January 1st. As expected, the tax implementation has accelerated customer migration from the lower margin retail channel to the higher margin digital channel, and you will begin to see those positive impacts next quarter. NettoPhone's bottom line continues to benefit from its strengthening gross margins and operating leverage, and this quarter, we also got a boost from favorable foreign exchange rates. Looking ahead, our AI offerings are generating very positive customer reviews and increased spend. Based on these early results, we are writing a new offering, Agentic AI, seamlessly integrated with unified communications with a go-to-market strategy targeting both direct and channel sales to small and medium businesses. Traditional communications remained a strong cash generator. The segment contributed $19 million in adjusted EBITDA during the second quarter, a decrease from the year ago quarter, but approximately the same as in the prior two quarters. Because of our recent strong financial and operational performance growth and outlook and balance sheet, we again repurchased stock in the second quarter, and our board has increased our annual dividend by 17% to $0.28 per year. Now, Marcelo, who is more of a gifted orator than I, will discuss our financial results. I also just can't go without saying that our hearts and prayers are with all of our soldiers abroad, and we hope that you come home safely.

Speaker 4: Thank you, Shumuo. My remarks on our financial results for the second quarter of fiscal year 2026 will focus on the year over year comparisons. to set aside seasonal impacts on our business. IDT achieved record levels in several key consolidated financial metrics in the second quarter, gross profit, gross profit margin, adjusted EBITDA, adjusted EBITDA margin, and non-GAAP EPS. These results were very much in line with our recent year over year growth trajectory. The underlying positive dynamic at IDT remains the same as it has been for several years, namely, our consolidated results increasingly reflect the growing contributions of our three higher-margin growth segments, NRS, fintech, and Netaphone, while the contributions of our larger, lower-margin traditional communications segment become relatively less impactful. To date, we have been pleased by the speed with which each of our three growth segments have increased their cash flow contribution. In aggregate, these three segments contributed during Q2 53% of IDT's consolidated adjusted EBITDA less CapEx, which we view as our proxy for free cash flow, compared to 45% in the year-ago quarter. Given this ongoing rotation, plus our strong results through the first half of the year, and our positive outlook, we have begun to increase our allocation to shareholder returns. Schmuel already mentioned the increased levels of our share buyback and our dividend. I just want to add that the increase in our dividend marked the second consecutive year of dividend increases, and we hope and expect to be in a position to continue increasing the dividend in the years ahead. Also of note is that the $15 million of stock repurchases in the first six months of fiscal '26 put us on track to exceed the rate of share buybacks compared to the preceding years. We allocated $18 million to share repurchase in all of fiscal 2025 and $11 million in fiscal '24. Now, I want to discuss our outlook for the remainder of the year. IDT raised its consolidated adjusted EBITDA guidance for fiscal '26 from the $141 million to $145 million range we shared at the start of the year to now being $147 million to $149 million. At the midpoint, this revised guidance is a $5 million adjusted EBITDA increase and a 12% increase compared to fiscal 2025 actuals. The guidance increase reflects certain developments in each of our segments. At NettoFund, our initial guidance made at the beginning of the year was predicated on the assumption that increased investment in AI product development would pressure adjusted EBITDA growth. It has not worked out that way. The Netaphone team had been extraordinarily disciplined and made excellent progress thus far this fiscal year, developing and refining its AI offerings with only modest increases in spend. That approach drove a 37% year-over-year increase in adjusted EBITDA to $3.9 million in the second quarter, a stronger increase than we anticipated. For the remainder of this fiscal year, we expect NettoFund's adjusted EBITDA growth rate to moderate somewhat as the increased investment in growth initiatives during the second-half of the year is expected. At Boss Money, federal immigration policies and the new federal tax on remittances that took effect on January 1st have had a massive impact on the remittance industry, no question. But the impact had been felt primarily on transactions originated at retailer agents rather than those initiated through a digital channel. As such, ITT has benefited from an accelerated rotation from higher revenue but lower margin retail channel transactions to relatively much lower revenue but higher margin digital channel transactions. This rotation has also been accelerated by our decision to maximize new term cash generation at boss money retail. As a result, Our higher-margin digital channel transactions increased at 17% year over year. That helped to drive a 15% increase in fintech segment gross profit in the second quarter. We are also achieving significant cost advantages as the money channel business continues to scale, specifically by negotiating better terms without payout agents as well as by continuing to integrate AI into our back office operations. The combination of stronger GP and more efficient operations drove a 44% increase in adjusted EBITDA compared to a year ago, well ahead of the pace we had envisioned in our original guidance. At Traditional Communications, we once again were very pleased by our ability to extract more cash from our telecom businesses. To date this year, our Boss Revolution calling business has been a true standout. Revenue is down by double digits, as we indeed expected and continue to foresee going forward, but gross profit has been rock steady over the past year. The Boston Revolution team has done an amazing job developing and bringing to market international prepaid calling plans that have significantly improved the unit economic of this business. And helping traditional business adjusted EBITDA to decline by just 3.5% in the first six months of the year compared to the same period a year earlier, which represents a lower rate of decline than we had expected in our original guidance. Finally, at NRS, merchant services and set fee revenue outperformed our expectations, but as Shmuo mentioned, the broader market softening in CPM rates in certain segments of our advertising markets offset those gains. so that adjusted EBITDA remains on track with our original guidance to achieve our forecast range of 20% to 25% growth for fiscal '26. To sum up, overall, we are very pleased with our financial results so far this year and are continuing to build on our momentum. Now, Shimon and I will do our best to answer your questions. Operator, back to you for Q&A.

Speaker 1: The question and answer session will now begin. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we assemble the roster. Our first question is from Inigo Alonso with Stoic Capital. Please proceed.

Speaker 5: Hello, Ismal, Marcelo, and Bill. I would like to ask for questions. I'll start with NRS. The first one is, well, a couple of questions on NRS. So are we going to see the monthly report again? We haven't seen the release for this year. And then in the past, you have mentioned how the opportunities for growth are ample, and I was wondering if you could provide some color on the execution level at the group in this quarter. for those opportunities and maybe some color on why SE&A went up and advertisement picked up a little bit from last quarter?

Speaker 3: On the first question, why the NRS release didn't go out, I don't know. I'd have to check. And as far as your second question on the pickup in SG&A, again, I would say it's probably a couple of different things. There's no one answer, unfortunately. One is maybe I should be watching them a little closer. Number two is that we are sort of beginning to sell a new product inside of NRS, and we've done some hiring sort of in advance of it coming out, and that has probably led to some increase in SG&A. And the third piece is, I would say that probably a larger percentage of our sales came through resellers recently, and they have a slightly higher percentage goes back to them. So I think that those are probably the three main effects. If I had to-- did I miss one of your questions?

Speaker 5: Yeah, the other one was on ad dynamics and if you can give some color on those opportunities that you have been working on?

Speaker 3: I mean, again, we continue to work every day to try to increase our advertising sales. As you know, we've had a couple of different challenges, including a partner that we worked with for quite some time that's no longer in business. But I think that overall, they're doing their best to get through this period. I think that going forward, we're going to do a much better job of really connecting the data that we have with the ads that we're trying to sell. And we think that that's going to be a much bigger contributor to volume going forward. Unfortunately, like it wasn't, yet a big enough contributor, but we expect that to be, what helps NRS ads turn the corner.

Speaker 5: Okay. On Boss Money, obviously, this was an important release because it was the first month of January including the results, and that is after the tax change. So we have seen a revenue decrease quarter over quarter, which is logical because you have seasonal promotions that you run in the winter, and you're probably trying to get customers. So part of it might be due to customer acquisition cost. I would appreciate color on, obviously, you know, the surveys that we have done in the markets, so see that immigrant communities are echoing about this tax transaction and they are adapting quickly to minimize their cost in remittances. So can you provide some of the picture of how many new users are you getting compared to what it has been in the past and maybe explain that revenue decrease quarter over quarter? Is it due to increased competition from retail players going digital or is it purely due to customer acquisition cost?

Speaker 3: I'll let Marcelo answer it a little bit more thoroughly. But I mean, one thing I'll say is that we had a weaker November and December than we had planned for. Frankly, we don't know why, just it was just weaker than we expected. January picked up quite dramatically and it's picked up since then as well. But I'll let Marcelo answer.

Speaker 4: Yeah, I mean, yeah, Shumbo is right. I mean, since the remittance tax kicked in in January, we saw digital transactions increase significantly and that impacted you too by only one month. Now, if you go into Q3, we continue to see a very nice uptick in digital transactions during February and now, if you go into March. I mean, just we ourselves are still trying to better determine how significant the remittance tax is going to be impacting the dynamics. There is no question that we are seeing some of our retail customers. migrating into our app. So some of the apples on our apple tree are moving to digital. But I think more than that is that I think we are picking up apples, retail apples from other players as well, and adding those apples into our digital offerings. So that's grabbing digital transactions. For example, this past week was our third best week ever in transactions for Boss Money behind just the week of Christmas and the week of Mother's Day, which typically are the strongest weeks. So in general, March, you should have a nice uplift seasonally. We've seen that in previous years. So it's a bit early to tell. We also are trying to get our hands around how strong this shift to digital is going to continue to be. It's a bit too early to tell. But so far, it has been good sailing since the tax kicked in.

Speaker 1: Really good.

Speaker 5: Higher picture question not related to this quarter performance. In 2021, you acquired a minority stake in MarketSpark. That company recently turned profitable. I was wondering, what's the plan with MarketSpark? Do you have any call options to acquire the full business? Is it planning to go public in the future? How do you see that investment today?

Speaker 3: I don't think that I can really comment on that. I mean, I'm a board member, and I wouldn't feel comfortable commenting on their business without their authorization to do so.

Speaker 4: Right. We have a minority stake in the company.

Speaker 5: And the last one, last quarter you mentioned how on the M&A front you were planning your next big move. Do you have any updates on the future in terms of M&A and if those conversations are still progressing adequately?

Speaker 3: Not right now.

Speaker 5: Okay, thank you.

Speaker 1: Thank you. Again, if you have a question, please press *, then 1. Okay, we have a question coming from William Vaughn with Corant. Please proceed.

Speaker 6: Hey, guys. Congrats on the quarter. My question, first question relates to NRS. Just wondering if you guys could give us some commentary just on the general, you know, single store operator, convenience bodega market. Like what trends are you guys seeing? I know in the past it's been mentioned that there is a little bit of an effect in terms of store traffic from the immigration policies. Has that changed? Are you seeing any trends or any type of commentary you can give on the economics around those businesses and what the NRS side is seeing? That would be helpful.

Speaker 4: Yeah, I mean, I think ultimately what drives the economics of the single retailer that we service is probably a lot less about the immigration issue. Now, that could be a factor, maybe certain markets in certain locations. But by and large, I think it's much more a reflection of the larger economy on the side of the customer pocket, affordability. So I think that inflation and other measures of customer demand are much more of a factor impacting how the retailers are doing than the immigration side. And so far over the past few retail report that we put out on a market basis, we have seen that the retailers continue to grow with the businesses that are now quite nice percentages. So I think that overall, when you look at our 35,000 plus retailers, I think that category remains quite strong.

Speaker 6: Another question on Boss Money. Nice growth in the quarter. And it sounds like you mentioned that the digital transaction business might be accelerating maybe in the second quarter. So I just wondered if you could get some color on that. And also, what are the competitive dynamics look like in the business? There are some other digital-first players that have shown really good growth in their previous quarter and their filings as well. So if you could comment on the competitive positioning, thoughts on investments in that business in terms of increased possible marketing to compete with those players? How do you guys think about that?

Speaker 3: I mean, again, as we, I guess, answered in the last question, it's definitely accelerating. I mean, in terms of competition, we have some very strong competitors, both from the traditional players as well as the only digital players. And I'm sure that they're also benefiting from the change from a retail-driven business to a digital-driven business. That being said, I think that we really do have an excellent app and an excellent experience for our customers. And we received probably by at least some measurements, the highest ratings of any app in the US. And we think that there's a reason why our customers come to us and stay with us. And our pricing is extremely competitive. The experience, as I said, is extremely good. If I were looking for a money transfer service myself, I would use Boss Money. So that being said, We do have strong competitors, and it's a competitive market. But we are spending, I would say, probably also more acquiring customers than we have in the past, just because we have been doing a good job bringing on customers. So might as well spend money to get more of them and keeping them.

Speaker 4: I would just add what I just mentioned in my remarks, something to bear in mind. is that, as you know, revenues at retail are significantly higher than revenues that are derived digitally. I think this is true for us, it's probably true for other players in the industry as well. And the reason being is that when we sell something at retail, we charge a much higher fee because usually half of that fee then goes back to the retailer, you know, the cost of goods sold or something like that. So in general, revenue per transaction is much higher. at retail than in digital. But at least for us, our digital net margins are simply higher than retail. So to some extent, now you're seeing that dichotomy that on one hand, our revenues continue to grow because of digital, but maybe not as fast as they used to. But some of it is because the retail revenues are coming down, which is now almost two times as high as our digital revenues but at the same time you see our EBITDA growing at a much faster clip because the margins at digital are so much higher.

Speaker 6: Awesome great color um last question so I was I was definitely pleased to see um the buyback of this quarter um just in terms of capital allocation uh the buyback is of 15 million or so um a definitely a great a great first step but it If I'm thinking about the businesses, you've got some really cash in their businesses here, the three high growth businesses, plus even the legacy business. And so the current capital allocation plan, it's great, but it doesn't necessarily put a huge dent in the cash position. So how you guys think about going forward, is it do buybacks got to keep the cash where it is right now? and maybe wait for a bigger opportunity for M&A transaction? Or do you expect buybacks to eventually sort of start eating away at the large cash mission that you have?

Speaker 3: I would probably say the first rather than the second. I don't expect cash to materially decline from where it is. I think we prefer having more cash available for for lots of different purposes, including potential acquisitions. That being said, as you're pointing out, the businesses are very cash generative, and we intend to continue to purchase back shares, depending on the price, more or less opportunistically. And we increased the dividend this quarter, as you know, and we try to be as responsible as we can.

Speaker 6: Awesome, guys. Thanks for answering my questions. Keep up the good work.

Speaker 3: Thank you very much.

Speaker 4: Thank you.

Speaker 1: Again, if you have a question, please press star, then one. 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.