IDT (IDT) Q3 2021 Earnings Call Transcript

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IDT (IDT -1.03%)
Q3 2021 Earnings Call
Jun 03, 2021, 5:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good evening, and welcome to the IDT Corporation's third-quarter fiscal year 2021 earnings call. In today's presentation, IDT's management will discuss IDT's financial and operational results for the three-month period ended April 30, 2021. During remarks by IDT's chief executive officer, Shmuel Jonas, all participants will be in a listen-only mode. [Operator instructions] After the prepared 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 to either 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 less capex, non-GAAP net income, and non-GAAP earnings per share. A schedule provided in IDT's earnings release reconciles adjusted EBITDA, adjusted EBITDA less capex, non-GAAP net income, and non-GAAP earnings 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 a Form 8-K with the SEC.

I would now turn the call over to Mr. Jonas.

Shmuel Jonas -- Chief Executive Officer

Thank you, operator. Welcome to IDT's third-quarter fiscal year 2021 earnings call covering results for the three months ended April 30, 2021. I'm joined today on the call by Marcelo Fischer, IDT's chief financial officer. For a detailed report on our financial and operational results, please read our earnings release filed earlier today and our Form 10-Q, which we expect to file with the SEC on or about June 9th.

IDT continued to deliver strong results, reflecting the sustained execution of our strategic priorities and the robust operating performances of our businesses. As a result, our top and bottom lines increased appreciably compared to the year-ago and prior quarters. Even though excluding the positive impacts of a reversal of income tax valuation allowances and gains on investments recorded this quarter, consolidated revenue increased $52 million year over year to $374 million with our fourth consecutive quarter of year-over-year revenue increases. With solid performances across the board, including an exceptional increase in mobile top-up revenue among our traditional communications offerings, consolidated income from operations increased from $10.1 million to $13.9 million this quarter.

Our adjusted EBITDA less capex, which is overall a good proxy for cash generation, jumped to $13.2 million and $5.7 million. Sorry, my kids have just joined me, I apologize. I am sorry, it's the problem with not pre-recording. I am just going to go back and drop, I apologize.

Consolidated income from operations increased $10.1 million to $13.9 million this quarter. While adjusted EBITDA less capex, which is overall a good proxy for cash generation jumped to $13.2 million from $5.7 million. All three of our reporting segments, net2phone-UCaaS, fintech, and traditional communications met or exceeded our expectations. Our high growth, high margin businesses once again performed extremely well, net2phone delivered subscription revenue growth of 39% year-over-year.

The increase reflected in part for progress on the net2phone development roadmap, net2phone continues to add API third-party integrations and now offers integrations with Salesforce, Zoho, PurpleCloud, Slack, Zapier, and Microsoft Teams, among others. Its growing integration toolkit enhances access to new segments across its domestic and international markets. In our fintech segment, NRS accelerated its impressive revenue growth increasing revenue by over 120% year over year, led by payment processing and digital advertising services. This quarter, NRS announced the partnership enabling our independent retailers to ship and receive commerce packages.

This deal illustrates the real strength of the NRS ecosystem, namely, its ability to generate revenue from a variety of services in ways that add tremendous value to our retailers. Also, within fintech, our BOSS Revolution money transfer business remained strong, generating 63% revenue growth year over year after excluding the significant positive impact of the transient FX opportunities we successfully pursued starting with the year-ago quarter, but which finally and completely ceased in the second quarter of this year. Our money transfer team has done a great job of enhancing the BOSS Revolution money app, user experience, and systematically cross-selling customers from our other BOSS offerings. In the coming months, we will continue to grow our money transfer service to new corridors, enhance our distribution network, notably in Africa and expand it to new origination markets.

These initiatives offer abundant long-term growth potential. And finally, within our largest segment, traditional communications, mobile top-up revenue jumped by $36 million sequentially and by $47 million year over year, underscoring the vigor of these offerings and the potential to sustain long-term cash generation. This significant revenue increase reflects our recent efforts to grow our share in the mobile top-up space. Powered by mobile top-up, adjusted EBITDA less capex for the traditional communication segment jumped to $20.8 million, an increase of $8.7 million from the year-ago quarter.

Finishing up our strong third-quarter operational results enabled us to further strengthen our balance sheet with a significant improvement to available cash and current ratios this quarter. Now, Marcelo, and I would be happy to take your questions. And I'm sure some of my kids would love to join, but hopefully, it will just be the two of us.

Questions & Answers:

Operator

We will now begin the question-and-answer session. [Operator instructions] Our first question will come from James Smith, a private investor. Please go ahead.

James Smith

Hi, good evening. I had two questions. The first one is in relation to IMTU, the large sequential jump. If you could just go into a little more detail there as to product development initiatives and, you know, the extent to which you think that's sustainable in future quarters.

And then the second question was on MarketSpark. In early April -- just a little more detail on what that product is, in which division it's going to see its -- and sort of what the plan is there? Thank you.

Shmuel Jonas -- Chief Executive Officer

OK. Marcelo, if you want to answer any or part of it, please feel free to jump in. The IMTU business was really a broad-based, you know, gains. I mean, we had gained at retail, wholesale, direct to consumer, Africa, Latin America.

There were some significant opportunities that we seized upon this quarter that we believe will continue. And we think that -- it has a bright future ahead. As far as MarketSpark, it's been an interesting ride so far. We're very excited about it.

You know, that being said, it's not -- it's a -- we're not used to being passive investors, we're used to being real operators, and we did not do the MarketSpark investment as the management in the business. That being said, I think the management in the business is very strong. The basic opportunity that we see in MarketSpark is there's a need to move from what people call pipelines to basically cellular lines. You know, as carriers effectively try to cut the copper wires in whole sections of the country, there's a need for, you know, security systems, POS systems.

Really any, you know, phone lines that require a specialized connection that was done over copper for years and years to switch to cellular. And basically, MarketSpark provides the technology to do so. And it's a very compelling offer, you know, for a variety of reasons. And the easiest one to explain is that there's a big advantage in the offer based on the taxes.

So the FCC, you know, taxes pipelines at a very, very high rate and cellular at a very, very low rate. So immediately, you're able to save customers money, almost guaranteed. And that's been the reason why they've landed so many large customers so quickly. You know, that being said, it's having its growing pains and -- but we think that it has an eventual very, very bright future.

So I hope that kind of answers your question. Does that answer the question for you Mr. Smith?

Unknown speaker -- Private Investor

It does, thank you.

Marcelo Fischer -- Chief Financial Officer and Senior Vice President

Yeah, and James in terms of -- James, in terms of where it belongs, because as Shmuel mentioned, we have taken a minority position in the company so we are going to be accounting for that investment. Under the equity method, we are not consolidating it, and therefore know the results. Offshore, the results of that business will be collected at an operating income or expense item in our P&L.

Unknown speaker -- Private Investor

That makes sense. Thank you very much.

Marcelo Fischer -- Chief Financial Officer and Senior Vice President

Sure.

Operator

[Operator instructions] Our next question will come from Brian Warner, a private investor. Please go ahead. Apologies, Brian seems to have dropped off. Our next question will come from -- will be a follow-up from James Smith.

Please go ahead.

Unknown speaker -- Private Investor

Thanks. without wanting to hog the microphone, is there an update you can share with regard to the potential spin-off or spin out of the UCaaS division?

Shmuel Jonas -- Chief Executive Officer

It's still on track. We don't have any change in the status as to what we told you last quarter.

Unknown speaker -- Private Investor

Got it. Thank you.

Operator

Our next question will come from Tim Delaney with Emergent. Please go ahead.

Unknown speaker -- Private Investor

Hi, guys. Could you comment on the change in reporting for the NRS and POS?

Marcelo Fischer -- Chief Financial Officer and Senior Vice President

Yeah, sure. Yeah, I mean, we decided to show the metric the amount of points-of-sales units that are active in the network, which is the method that we use to show you a few quarters ago. We found that to be a better metric to help investors in being able to associate that with the growth of the POS terminals and assess growth on the revenues, as opposed to using billable information. Because information sometimes varies depending on somebody's billing terms to different customers and some of the collection terms, it will be a little more spotty.

Using active terminals now shows a better trend, maybe, and it's a bit more conservative number as well, because typically, you may have more billable units than active units. For example, if a retailer is going for a vacation or it's a seasonal retailer, in those situations. Now, even though you might be billing the retailer, the unit might not be active, and we define active meaning that there's a transaction activity going through the unit. So we found that showing active units of the terminals will be a better way to show the KPI trend in a more consistent way with our revenue increase.

Unknown speaker -- Private Investor

Great, thank you.

Operator

Our next question will come from Brian Warner, a private investor. Please go ahead.

Unknown speaker -- Private Investor

Hi. Sorry about that for I'm not sure what -- when I got cut off, but I had three questions. One was maybe if you can give us a little more color on what you're doing in mobile top-up to take share there because that was quite a quarter? And maybe you can frame the opportunity as you see it over the next few years for that piece of traditional? Secondly, maybe you could touch on how your mobile offering with T-Mobile is going? And then finally, maybe you can give us a little color on the timing and anything else you might want to share on the net2phone spin-off?

Shmuel Jonas -- Chief Executive Officer

So maybe not in order of the way you ask them, but on the third one, I mean, I think that we answered that question to a previous caller, there's no change in the timeframe that we provided last quarter. And as far as the MVNO through T-Mobile, it's actually going very well. You know we had our best growth so far, the past couple of weeks. And you know, again, it's a product that has -- that had a hard time, as everyone knows, you know, launching, but we're actually doing pretty good numbers so far.

As far as the IMTU, as I said, it's really been a very broad-based gain. Really throughout every channel that we sell internationally, domestic, B2B, wholesale, etc., we really did well, you know, across the board. And again, there are always market opportunities and we try to capitalize on them when they come. And we believe that a lot of the, you know, the small acquisitions that we've done in the space are helping with it, both in terms of the technology that we acquired, as well as the expertise and pricing information that we now have.

And that's allowed us to capture a larger percentage of the market. 

Unknown speaker -- Private Investor

Got it.

Shmuel Jonas -- Chief Executive Officer

And we think it's a very growing market in general. I mean, the amount of data that people are using, you know, worldwide continues to grow and the need for people to top-up, you know, both their loved ones phones, as well as their own phones in the country continues to grow. And we're providing that services in both places, both domestically as well as internationally.

Unknown speaker -- Private Investor

I got you. Sounds great. Congratulations.

Shmuel Jonas -- Chief Executive Officer

Thank you.

Operator

[Operator instructions] As there are no more questions, this concludes our question-and-answer session and conference call. [Operator signoff]

Duration: 29 minutes

Call participants:

Shmuel Jonas -- Chief Executive Officer

James Smith

Unknown speaker -- Private Investor

Marcelo Fischer -- Chief Financial Officer and Senior Vice President

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