Thank you, operator. Welcome to IDT's earnings conference call.

I'm joined on the call by Marcelo Fischer, IDT's Chief Financial Officer. We will both be available to answer questions after my remarks.

My discussion today focuses on the third quarter of our fiscal year 2022, the three months ended April 30. For a more detailed report and discussion on 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 Thursday, June 9.

Since its inception over 30 years ago, IDT has generated shareholder value by incubating and growing promising business initiatives. We are currently leveraging our core strategic assets to scale three high-margin growth businesses: NRS, net2phone and BOSS Revolution Money Transfer, while simultaneously benefiting from the significant cash generated by our Traditional Communication segment.

Each of these three high-margin, high-growth businesses had a very strong third quarter, helping us to again achieve solid levels of consolidated income from operations and adjusted EBITDA, consistent with our results from the first two quarters of our fiscal year. NRS added nearly 1,400 net POS terminals and 1,200 net payment processing accounts during the third quarter, maintaining the accelerated rate of acquisitions achieved in the second quarter.

NRS recurring revenue increased 102% year-over-year, keyed by strong merchant service and advertising sales. Looking ahead, we expect that NRS will sustain robust, high-margin growth in the coming quarters.

In particular, we expect advertising and data offerings to benefit from both long-term trends such as the increasing allocation of advertising budgets to out-of-home venues, as well as from seasonal tailwinds including increased political advertising heading into the second half of the calendar year. net2phone's strategic focus on the SMB and small enterprise markets within North and South America, efficient execution, and acquisition of CCaaS provider Integra all contributed to solid growth in the third quarter.

Subscription revenue increased 42% year-over-year due primarily to the addition of approximately 22,000 seats during the quarter, including almost 7,000 seats from the Integra acquisition. Seat growth was again strongest in our Latin American markets although our U.S.

businesses performed very well as well. We will begin selling our CCaaS offerings in North America in the current fourth quarter of our fiscal year and expect its expansion to gradually become a key driver of both seat growth and ARPU expansion.

A month ago, we announced our decision to postpone the spin-off of net2phone, in light of market conditions. We believe that we can significantly enhance net2phone's value by continuing to grow the business and improving net margins.

And in fact, we are already making good progress. The net2phone-UCaaS segments loss from operations in the third quarter decreased to $2.3 million from nearly $4 million in the year-ago quarter.

Segment CapEx in the third quarter was $1.4 million compared to $1.3 million a year earlier. BOSS Money, our international remittance business, increased revenue 51% to $15.5 million, driven by a 27% year-over-year increase in transaction volumes and a comparably robust increase in revenue per transaction including both transfer fees and revenue derived from foreign exchange.

We continue to build out our disbursement networks, particularly in Africa and the Caribbean, and to fine-tune our direct-to-consumer pricing strategies to capture additional revenue and margins. In our Traditional Communications segment, revenue decreased by $59.9 million or 17% to $285.9 million.

The surge in demand for paid voice that we experienced during the COVID pandemic is now retreating and exacerbating the impact of the underlying revenue declines in retail calling and wholesale carrier services. Our Mobile Top-Up business struggled this quarter, but we are investing in technology and marketing, and sales to improve its performance.

Because Traditional Communications' lost revenue overall was skewed to lower-margin sales, income from operations from this segment decreased $3 million year-over-year to $17.4 million. On a consolidated basis, income from operations decreased $500,000 to $13.3 million while adjusted EBITDA increased $100,000 to $18 million.

To wrap-up, all three of our high-margin, high-growth businesses had a strong quarter. Their expansion continues to offset the decline of the low-margin, minute-based revenues within our Traditional Communications segment.

We expect that as our growth businesses continue to expand, our consolidated bottom line results in the coming quarters will increasingly reflect their contributions. Although we have postponed the spin-off of net2phone, we continue to believe that the spin-offs can be attractive and appropriate strategy to help shareholder benefit more directly from the expansion of promising young businesses whose assets and operations are readily separable from those of our other businesses.

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

Hey guys. Thanks for taking my question.

Obviously, great job as usual, especially with NRS. I wanted to ask – this is the second consecutive quarter you're putting up 1,400 installs, which is kind of an accelerated rate from what you've been doing previously.

Can you discuss through which channels you're seeing that NRS growth? Is it direct distribution call center?

Could you talk about that a little bit please?

It's really basically enhanced sales in each of the segments. So it's not coming from one in particular, they're all having an increased rate of sales.

Okay. And I know I've asked you this before, but given the fact that – I think this is your first time giving any forward-looking commentary about NRS explicitly in a press release, which it seems like it's coming from the ARPU side of the equation rather than the new unit side.

So I wanted to ask again, do you have any updated thoughts on where we think ARPU for NRS could go from here?

I don't have a specific number in mind, but I do believe that ARPU will go up.

Okay. And any reason to think that we can see 1,400 installs per quarter as a new normal, or should we still be thinking about this as a 1,000 units per quarter business?

I personally think that we can grow above the 1,400 new units per quarter. And we were – I mean, one of the things that held us back this particular quarter was really shortages of equipment.

But we spent a lot of money to bring in a lot of inventory and equipment, so that we will not have that issue again. And we think that we're in a good shape now to deploy more than we've been deploying.

Do you think you can get, so you said you might be able to do more than 1,400. Is that all coming from your traditional C-store bodega installs?

Because I know in the past you've talked about initiatives to sell outside of that market. Is there any update you can give us on that?

I don't have anything like, at the tip of my fingertips at this moment about what kind of stores the sales came from. Obviously, a large percentage came from the – what I would call, our primary market.

But we really had sales in lots of different areas, anything from dollar stores to liquor stores to quick service restaurants, et cetera.

To quick service restaurants, I think that's a new one.

That might be…

Have you been – how long you have installed the quick serve?

I don't know. The past, I would say, 12 months since we rolled out modifiers, we've been adding restaurants.

Okay. That's very meaningful.

I mean, is that going to be a material portion of the business? Are you putting extra resources in that?

Or is that just – are you still solely focused on C-store and bodegas?

Again, I don't think that we're solely focused on it, but I would say that we're primarily focused on it. When we build new features and functionality like that is who, we primarily have in mind, if other customers also see the benefits in those same features, then great.

But we definitely do target our development towards our core market.

Okay. Great.

On the payment side, payment processing, can you disclose the proportion of new customers? So I think – so last quarter you have 8,000, now you have 9,200.

What percentage of that was from new installs? Was it substantially new customers?

Or are you making progress on penetrating your existing base?

I would say substantially new customers. But we are also making some progress in going after the base of existing POS customers.

Great. And I mean, how should we think about NRS and your payments business in particular in an inflationary environment?

I mean, I think as a – taking a percentage of the swipe, I would think that at least on a dollar basis, you would keep up with inflation. I mean, how do we kind of think about that, I mean, given the current economic environment?

I don't have a real answer to you. I would say that our stores have been doing well.

Their average, I'll call it, check size or ticket has grown. And by that happening, the average credit card volume has grown along with that.

What affects inflation in specific has to do with that. I can't give you an answer.

But I don't expect that to have a material answer, although maybe Marcelo has more to add on that.

Hi, David. It's Marcelo.

Your headline, okay, I mean, being that our payment processing is really more a variable component of the total cost – of the total charge, now we are kind of inflation protected, okay, from that perspective. So we write the inflation away from this.

Great. Last one for me.

Is there any desire to make an acquisition on the NRS side, something maybe in the payment space, data space, just something to sort of accelerate your growth? I mean, your growth is obviously fantastic, but I'm still looking at NRS within the larger IDT house, right?

So I'm trying to think about what attracts people to the stock and with traditional, with that EBITDA kind of going down and looking at flat year-on-year growth, it's like – it's fine and your growth is great, but I would want – I really want to see people focusing on this NRS piece. And so I'm just curious if there's anything that we can do to kind of accelerate that in any way or what are you thinking about that?

I mean, I'll say two things. I mean, one is, we look at lots of things.

Some of them are outside of our comfort zone. And for that reason alone, we do not do them, like I would say that we are conservative by nature.

On the other hand, I would say that, I believe that organic growth is going to be very, very strong. And when you do an acquisition, it does take a lot of effort and time from management of integrating that acquisition into your business.

And we're a little bit hesitant to throw a monkey wrench into something that's working well. So I would say that if the right opportunity comes along, we're definitely open to acquisitions in particular areas for NRS, but we are not by any means in need of an acquisition to help us continue to grow both stores and ARPU.

All right. Great.

Thanks, guys. I'll sign-off.

Hey, guys. How are you?

Thanks for taking my questions. Great job.

Really strong quarter. Just one for me.

An update on Mobile Top-Up would be helpful. I think, especially as I believe last quarter, you talked a little bit about competition in wholesale and the potential negative effects from that.

So anything you'd like to add would be really helpful. Thank you.

I don't want to give away anything to our competitors that also listen to the calls. But I would say that, listen, a bunch of our competitors have gotten large investments into them – into their Mobile Top-Up businesses.

And I think to maybe please their investors, they're focusing more on revenue growth than on profitable growth. And we try to focus on both.

This quarter, unfortunately, we didn't do maybe a good enough job focusing on the revenue side of the business. But I do believe that a lot of the products that we have in the pipeline are going to make our offerings much stickier and therefore the revenue from them much more predictable and profitable.

Okay. Great.

Yes. That was it for me.

Thank you for the color. I appreciate it.

Hi. Congratulations on a great quarter and particularly NRS.

I just have one other question and – or actually I've got two quick ones. One is with regard to NRS, and I'm wondering about the expansion possibility.

So again, it's kind of land and expand to sell active terminal and then you get more services. And I'm wondering on the services side, have you – I guess without giving away too much thought about, or given have a strategy with regard to expansion, so like more NRS pay adoption on the NRS side.

And then the other quick question was with regard to the net2phone spin-off, if you have a new target date for that as well. I know that it's been postponed.

I talked to Marcelo about it having been postponed this quarter and not going to happen by the July 30th time because the market conditions, which I think was wise. But just wondering if you have a new target date on that?

So I'll answer your second question first. We do not have a new target date on it as of yet.

Again, as we stated both in, I guess in my remarks today, as well as in our press release related to delaying the spin-off. We are very focused on improving net2phone's bottom line as well as expanding their base of customers.

And we think that when the right time reoccurs, which it will, that next one will be a much more valuable company at that point in time. As far as your question regarding land and expand relating to NRS, I would say that that is definitely a big part of our strategy.

And we had – well I would say, we didn't have a great quarter expanding merchant services into existing stores. We did have a very good quarter expanding the software side of the business into new – I'll say expanding the software offerings that we offer into new stores – not into new stores, into existing stores.

So upselling them into higher software programs. And our software programs and our merchant service programs are actually aligned in the fact that if you take our merchant services, you get significantly lower pricing on our software services.

And that is definitely been a reason why so many of our customers have taken merchant services from the beginning and now we need to do also a good job of going back out to some of our stores and retelling them the reasons why they need to switch to our merchant services and to take more software solutions from us. So we will continue doing that in the coming quarters.

Okay. Thank you, and congratulations on a great quarter.

Thank you.

Hey, guys. Thanks for taking the call.

The absolute beast with NRS, obviously, so. My question is about net2phone.

It's nice to see that North America growth is happening in there. Give us any color around that, and – so your expectations going forward particularly around North America?

I would say that – I think that level of sales that we achieved this quarter in North America, we feel pretty confident that we can achieve at least those levels of sales going forward, if not quite a bit higher. And again, as I remarked also during the prepared remarks, we are adding our CCaaS solutions beginning this quarter, and I'm already starting to see some sales coming through from that and that will lead to both higher ARPU as well as higher margins.

Great. That's awesome.

Thank you so much.

Hey, guys. Thanks for the question.

I'd just like to start-off by building on – David asked earlier on NRS, but what would it take to get to, call it, 2,000 net adds from the current 1,400?

One or two good months.

Looks like three or four months quarter.

Yes. No.

I mean, I think that, again, I can't say that we are – we don't give forward guidance and I want to be careful not to give forward guidance. But I do believe that we are going to get to those kind of numbers relatively soon.

Okay.

And again, it comes from multiple channels, it's not from any one specific channel. It comes from having success from all the different channels that we sell through.

Okay. And what was NRS EBITDA in the quarter, Marcelo?

The EBITDA was if you exclude some one-time non-cash compensation items was about $1.9 million EBITDA for NRS.

Okay. And switching to net2phone.

Can you just elaborate a little bit on the plan for improving the bottom line there?

Yes. I mean, I guess it's a variety of things.

It's being more careful on marketing spend, being more careful on only keeping productive sales people, it's being more careful about which customers you decide to work with and what size deals you go after, it's really a lot of – I would say it's focusing on the details. And I think Marcelo has something to add.

Yes. I mean, it's also focusing on geographies, right?

As you know, we operate in a number of countries. Some countries are growing at the much faster clip than others.

We are looking at our customer acquisitions in a much more disciplined way in terms of allocating that capital to the geography that are getting the highest return. Mexico growth is exploding right now, for example, although all the markets are growing.

So they're going to be more focus in targeted investments, so we get – the capital going to the highest IRR generating customer acquisitions, a very, very deep look at the core cost structure and at the same time, continue to grow the topline. And let me tell you, as the business continues to grow, the scale matters significantly, and Q3 was a great quarter for us in net2phone and it continued to scale this way.

I would really hope that now I think going to next year that you're going to see a net2phone business which is strong, still growing now 20%, perhaps more on the topline and getting very close to profitability, if not already being EBITDA accretive.

Okay. Thank you for the questions.

Yes.