Shmuel Jonas - CEO Marcelo Fischer - SVP, Finance

John Rolfe - Argand Capital

Thank you, operator. Welcome to IDTs third quarter fiscal 2016 earnings conference call.

My remarks today will focus on our business strategy as well as key operational and financial results for the three months ended April 30, 2016. Unless I indicate otherwise, any comparison with third quarter’s results are 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 June 9. 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.

Yesterday, IDT spun-off to our stockholders our interest in the Zedge as an independent public company. The hugely popular and fast growing Zedge app for mobile device personalization began trading the regular way on the NYSE market exchange today.

I want to congratulate the entire Zedge team, and particularly Tom Arnoy and Jonathan Reich, and wish them good luck and much success as an independent company. We believe Zedge has tremendous potential and the right team to fully realize it.

IDT has spun-off or monetized a series of promising businesses in recent years, including CTM Media in 2009, Genie Energy in 2011 and Straight Path in 2013, as well as the sale of Fabrix in 2014 and paid over $5 per share in dividends. We believe this strategy has worked out well for our shareholders.

Zedge, we believe is in a great position to continue this tradition by generating long-term value for its shareholders. Looking ahead, we expect to continue to identify and nurture promising early stage opportunities within and outside of telecom, with the potential to become game changers in their industries.

Whether we realize value for shareholders by keeping them as core business operations that provide growth and free cash flow or monetize them through a sale or spin-off. IDT shareholders will benefit from the targeted portfolio of growing business initiatives we are pursuing today.

One of the most promising of these initiatives is our nascent international money remittance business. Although it is still quite small, revenues increased from $1.1 million in the year ago quarter to $1.8 million this quarter on an increasing transaction volume.

It is now approaching a run rate of 1 million in remittances per year. We see tremendous potential for additional growth in this business.

We are operating in only about dozen states and those states operations are not anywhere near full penetration. We also are not yet in some of the biggest markets for money transfer including California and New York and we expect a geographic expansion alone will be a significant growth driver in the coming quarters.

The Boss Revolution brand and transaction platform and our extensive retail networks of point of sale focused on immigrant populations provide us with a huge opportunity that no other online player can match. Our money transfer team is working hard to further accelerate the business' growth and I'll update you on their progress during the future calls.

Our Net2Phone offering is also getting traction and we project it'll expand greatly over the next few years. Net2Phone will also get a big boost with the PickUp.

As I mentioned last quarter PickUp offers a free inbound and cloud PBX service with premium feature optionality and is a great entry point for start-ups and small businesses. In addition to these initiatives, we have also launched national retail solution to provide services to our vast network of retailers and consumers.

While still in the nascent stage, it has already developed a sophisticated platform and we’re partnering with financial service firms at consumer packaged goods companies. In addition IDT is not confined to new businesses.

We are making good progress, transforming Boss Revolution from a pinless calling service to communications and payments platform for immigrants to stay close to their friends and family around the world. For the near term that strategy is currently focused on two key objectives, first we're upgrading the Boss Revolution retailer platform to improve our interactions with our retail network.

The new version of our retail portal integrates our own money transfer software and enables the retailers to sell our bill payment services and general purpose, reloadable cards domestically and overseas. This is the big step and our goal is offering a comprehensive payment suite.

Second, as we talked about on previous calls, we will roll-out a new generation Boss Revolution app. The app has had 4 million downloads and 2 billion minutes carried.

Recently, we added mobile top-up and money transfer and that helped us achieve very nice growth in the apps active monthly users. The next version that includes peer-to-peer calling and instant messaging is almost ready for launch.

Now I want to make a few points regarding the quarter's financial results. I'm going to try not just to repeat the information contained in our earnings release which you can and should read for yourself.

But I do want to make a couple of observations. IDT delivered solid bottom line results this quarter.

The sequential revenue decreased primarily from our wholesale carrier business was disappointing but had a muted impact on our bottom line. That's largely because of revenue we lost with very low margin and because we continue to manage our overhead spending even as we invest more heavily in our growth initiatives.

$24 million of the $27.3 million sequential revenue decline was from our wholesale carrier business, which lost a couple of high volume but very low margin customers. Revenue in the retail communications vertical declined $18.5 million year-over-year and $4.1 million sequentially.

Most of the revenue decrease was from sales of traditional calling cards in the U.S. and overseas.

Sales of Boss Revolution's pinless calling service which compromises the majority of retail communications revenues and generally captures higher margins decreased 4.5% year-over-year and 1.1% sequentially. The year-over-year decrease reflected the impact of the deregulation of the Mexican telecom market that we have discussed on previous calls.

Sequentially the decline was largely a function of a shorter third quarter which had two fewer days than the second. On a per day basis sales of Boss Revolution's international calling service increased 1.1% sequentially.

Adjusted EBITDA in the third quarter totaled $10.3 million. Our continuing efforts to manage our overhead limited the decrease in adjusted EBITDA to $3.3 million year-over-year and $1.3 million sequentially.

In light of these results IDT's Board declared a quarterly dividend of $0.19 for the third quarter. That would be end of my remarks.

Now, Marcelo and I would be happy to take your questions. Operator, back to you.

A few questions, you made some initial comments about the international money transfer business, I just was hoping you could repeat those. I thought what I heard you say was that, in the quarter revenue from that business had grown from 1.1 million to 1.8 million, but then -- is that correct?

That's correct.

But then I subsequently thought I heard to say that, that was $1 million annual -- you made some comment about that being $1 million annual business which doesn't make any sense, so I might have heard…

$1 million transaction, it's like a number of actual transfers made.

1 million transactions?

Correct.

Okay, got it. And what would be a typical revenue you would generate on a transaction?

It depends if it's online or offline and where the destination is. But I'd say it's anywhere from $2 to $5.

It could be a little more actually.

A couple other questions, it appeared to me this was actually the first quarter in some time that you shown growth year-to-year in your deferred revenues. And I was just trying to square that with the fact that Boss Revolution growth slowed close to nothing sequentially and that you had some declines in the calling card business.

So, what really drove that deferred revenue increase?

Hi it's Marcelo. Deferred revenue continues to increase or remain stable primarily because of the strength of Boss Revolution.

Although, we have seen declines in Boss Revolution because of the erosion of our Mexico corridor customer base, because of the regulation that’s happening in Mexico. All other destinations on the other hand and the customer base of that continues to grow.

And typically for the revenue pretty much in the constant.

And my last question, do you expect any material change in the corporate overhead run rate with Zedge being spun-out or was that not really a material test without line item?

With the spin-off of Zedge IDT will enter into agreement with Zedge to continue to provide on a conditional basis certain back-office functionalities for them. Like finance functions and HR et cetera.

And to that extent IDT will charge Zedge for those services. So for the foreseeable next year or so the corporate costs for IDT will come down slightly.

So now it's going to be a decline next year to the corporate level but the totality of it in absolute terms is not going to be meaningful for IDT.

Okay, great. Thanks very much guys.