Oct 3, 2013
Executives
Samuel Jonas - Chief Operating Officer Tom Arnoy Jonathan Reich - Chief Executive Officer - Net2Phone Global Services LLC Marcelo Fischer - Senior Vice President of Finance
Analysts
Jay Srivatsa - Chardan Capital Markets, LLC, Research Division Robert W. Koehn - Ivy Lane Capital Management, LLC John Edward Rolfe - Argand Capital Advisors, L.L.C.
Operator
Hello, and welcome to the IDT Corporation's Fourth Quarter and Full Year Fiscal 2013 Earnings Conference Call. [Operator Instructions].
In today's presentation, IDT's Chief Operating Officer, Samuel Jonas, will discuss IDT's financial and operational results for the 3-month and 12-month periods ended July 31, 2013. 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 obligations either to update any forward-looking statements that may have -- that they may 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 the Q&A, IDT's management may make reference to the non-GAAP measures, adjusted EBITDA, non-GAAP net income and non-GAAP EPS. A schedule provided in the earnings release reconciles adjusted EBITDA, non-GAAP net income and non-GAAP EPS 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, www.idt.net. The earnings release has also been filed on a Form 8-K with the SEC.
Finally, please note, this event is being recorded. I would now like to turn the conference over to IDT's Chief Operating Officer, Samuel Jonas.
Samuel Jonas
Thank you. I'm joined here in Newark today by Marcelo Fischer, the Chief Financial Officer of IDT Telecom.
And to answer your questions about Zedge is Jonathan Reich, Chief Operating Officer of our Zedge business. We also have Tom Arnoy, CEO -- Zedge's Co-Founder and the Chief Executive Officer on line from Norway.
For those who are new to the IDT story, let me begin by summarizing our business. IDT's growing and profitable core telecommunications business is focused on providing international long distance calling and payment services, primarily to immigrant communities through our flagship Boss Revolution brand and on leveraging that retail traffic to provide wholesale international call termination services to other telecoms globally.
In addition, we have majority stakes in 2 exciting early-stage businesses, Zedge and Fabrix Systems, built around mobile content acquisition and cloud-based video storage, respectively. Rather than start with an overview of our results for the fourth quarter and the full fiscal year 2013, I'm going to take a few minutes to highlight several trends and strategies, which are driving our business and results, touching on the numbers as appropriate.
And when done, we will take questions. I'll begin by pointing out that our 2 non-telecom businesses, Zedge and Fabrix, continue to perform extremely well.
I believe that both businesses are often overlooked as significant potential sources of value within IDT. During the fourth quarter, we announced that we have begun to explore strategic options for Zedge, where mobile users go to discover free high quality mobile games, ring tones and wallpapers.
Zedge's app is available on both Android and iOS. We believe that as consumers continue to customize their devices, platforms like Zedge that offer everything from wallpapers to ring tone options will prove increasingly popular with consumers.
Already, Zedge has been ranked in the top 15 most popular apps in Google Play store for the last 3 years. That is a remarkable feat, typically one that is only achieved by players like Facebook, Google and Twitter.
More impressive is that Zedge's popularity has been fueled by organic growth, not by expensive user acquisition programs. Zedge has over 1 million Facebook likes.
Zedge's sustained popularity is a testament to the unique value that it offers to mobile phone users, mainly a fun and easy way to acquire relevant content, which is in high demand and core to the mobile customer experience. That value is enhanced exponentially by Zedge's ability to identify and deliver curated content recommendations, specific to each user with a singular commitment to an outstanding user experience.
You will notice that in the earnings release, in our soon to be filed SEC 10-K report, we have begun to report Zedge as a separate reportable segment. While Zedge's revenue growth continues to be impressive, up 70% in the fourth quarter compared to the year ago, our segment over this business is based far more on the underlying user metrics and the exploding mobile market in which it operates.
Zedge's app has been downloaded over 75 million times and remains installed on over 33 million devices. A huge percentage compared to most other apps, which testifies to Zedge's user satisfaction and acceptance.
Also, I think it's important to highlight that we believe that Zedge's popularity on Android serves as a good harbinger for what we expect to happen on iOS. As you recall, Zedge's app has been available on Android since late 2009 and today, around 20% of all Android users in the U.S.
have installed Zedge on their phones. Zedge released a limited version of its app on iOS featuring wallpapers alone in December 2012.
Despite this initial content limitation, Zedge's iOS app has already been installed close to 5 million times and is in the top 100 most downloaded free apps in iOS. In the coming weeks, Zedge will expand its iOS offering to include ring tones, which should accelerate growth even further.
And we will then launch games and apps and the discovery tools inside. In order to fully realize what we believe is Zedge's impressive untapped value, we are looking at value unlocking options for this business.
The alternatives may include a spinoff as a separate company, a sponsored spin-off taking in a strategic partner or an outright sale. The goal is to find the right mix of growth capital and positioning to allow Zedge to flourish and have that value recognized.
IDT, of course, has a track record of creating shareholder value by successfully pursuing strategic alternatives. Net2Phone, IDT Entertainment and more recently, Genie Energy and Straight Path Communications subsidiaries are all examples.
With regards to Zedge, we are very early in this process and we will keep you apprised as developments warrant. Now let me shift gears to discuss IDT's financial results, beginning with our steady revenue growth.
Fourth quarter revenue of $412 million represents the 14th consecutive quarter of year-over-year revenue increases. From a revenue standpoint, our TPS segment accounts for 98% of IDT's total revenue.
So let's spend a little time discussing where the growth in TPS is coming from and to understand why. TPS's revenue of $404 million in the fourth quarter increased 6.8%, compared to the year-ago quarter.
And for the full year, fiscal 2013, it increased by 7.5% to $1.6 billion. The IDT Retail Communications vertical within TPS was the key driver of TPS's revenue growth.
Retail Communications' revenue in the fourth quarter increased 20% year-over-year to $176 million. For the full fiscal year, Retail Communications grew by 19%, compared to fiscal 2012, to $656 million.
Retail growth was powered by sales of our flagship Boss Revolution PIN-less service, which saw sales grow by 56%, compared to the year-ago quarter, and now compromises over 75% of all U.S. Retail Communications revenue.
Retail Communications also include several product lines that are in decline, including most notably, our traditional disposable prepaid calling card businesses in both the U.S. and abroad.
Within Retail Communications, these declining product lines are becoming less impactful as Boss Revolution PIN-less continues to grow. In fact, traditional prepaid disposable calling cards comprised less than 10% of U.S.
Retail Communications revenue in the fourth quarter. For fiscal 2014, we expect that Boss Revolution PIN-less will again power a double-digit increase in Retail Communications revenues compared to 2013, though most likely at a rate below the 20% jump we saw in the fourth quarter.
We are seeing slower growth in Boss PIN-less as the service matures, and we begin to fully penetrate our target market in certain areas. Also just last week, Boss Revolution apps were launched on Android and iOS and Version 2 is already being readied for release.
TPS's payment services vertical also continue to play a prominent role in the growth story. The largest current component of payment service revenue is derived from the sales of international airtime top-up or what we referred to in the past as IMTU.
Payment services revenue increased 17% compared to the year-ago quarter to $50 million for the full year. Payment services revenue is up 25% to $191 million.
You can try the service for yourself by going to bossrevolution.com from your desktop or mobile phone. Our Wholesale Termination vertical, with revenues in the fourth quarter of $165 million, saw a decrease in revenue of 6% compared to the prior -- compared to the year-ago quarter for fiscal 2013.
Wholesale Termination revenue is $688 million, a decrease of 4% compared to the prior year. The decline resulted primarily from rate increases imposed on calls industry-wide into several popular South Asian countries that began to impact us in the third quarter.
Although these increases reduced our minutes of use and revenues to these destinations, these routes were only marginally profitable and hence the reductions in revenues have virtually no impact on our probability. To see some of our innovative ways, we helped small carriers log into idtexpress.com.
You'll see new tools that allow carriers, particularly smaller ones, to self-service their international long distance telephony needs. For fiscal 2014, we expect that Wholesale Termination revenues will remain relatively steady.
However, as we experienced with the South Asian destination carders pricing issue in the third and fourth quarters of this year, development completely outside our control can have a significant impact, positive or negative, on Wholesale revenues, but typically with little consequences to bottom line wholesale business' profitability and operating margins. These 3 verticals: Retail Communications, Payment Services and Wholesale Termination provide a good starting point for understanding the likely trajectory of growth in the current fiscal year.
Looking further into the future, our ability to grow and prosper will depend, in large part, on our ability to expand the geographic footprint and distribution penetration of our existing Boss Revolution base products, our ability to acquire and retain Boss Revolution customers, and our ability to further diversify the Boss Revolution franchise to include a powerful suite of payment services tailored to our target market, underbanked immigrant communities, primarily in the U.S. The United States leads the world by far and away in attracting foreign-borne residents.
As of March 2012, the Pew Research Center estimated that approximately 42 million immigrants lived in the U.S. and nearly half of them were of Hispanic origin.
Further, a significant portion of the foreign-borne U.S. population, around half are underbanked.
Data also shows that the underbanked spend a disproportionate amount of their income on alternative banking services, like money orders, check-cashing fees, et cetera. There's clearly a huge potential for affordable, convenient and reliable payment services accessible to the underbanked consumer.
In terms of Our payment service offerings, we have already rolled out not only global airtime top-up products over the Boss Revolution platform, but also domestic airtime top-up and more recently a domestic bill payment product. And as we previously announced, we are also soft launching our international money remittance service and have begun to gradually sign up agents in those states, now 37, where we have been issued the requisite state regulatory licenses.
During fiscal 2014, we expect to add to our suite of payment service products, with additional offerings including a prepaid virtual Visa card that will enable the unbanked to shop online, a reloadable debit card to provide bank account, like financial services, enclosed loop gift cards that will enable customers in the U.S. to purchase gift cards of popular international brands and retailers that family members overseas can use to shop in their favorite local stores.
The strength of this suite of payment services lies not only in its diversity and comprehensiveness, but also in that it leverages the Boss Revolution brand and platform. That platform is not only a powerful, highly scalable and very flexible transaction processing engine, but also a network that allows us to communicate instantly with our distributors and retailers, and adjust prices in terms to changing market conditions.
The invisible glue that holds all of this together is trust, trust that our customer base has in Boss Revolution. Boss has become a leading PIN-less calling brand for our target market because of our transparent and competitive pricing and the ease of use and quality of services we provide.
We intend to build upon and enhance that trust as we deploy new payment services. To wrap up, I just want to underscore the importance of adjusted EBITDA results.
For the fourth quarter, adjusted EBITDA increased over 45% to $9.7 million compared to the year-ago quarter. While for the fiscal year, adjusted EBITDA increased 55% to $39.4 million.
The bottom line here is that we're taking a long view towards investing in and leveraging the scalability of Boss Revolution, while at the same time, focusing on short-term cash generation and sharing this cash with our shareholders through dividend payouts. And in fact, we today announced that we'll resume quarterly dividends, the disbursement for the first quarter of fiscal 2014 of $0.15, provided that the quarter's results are consistent with our internal expectation.
Throughout fiscal 2014, we expect to continue to grow revenue and deliver adjusted EBITDA at or better than 2013 levels, even as we continue to invest in new payment initiative and technology that brings us ever closer to our customers. Finally, as we move to the bottom line of our income statement, I want to stress that the full year provision for income tax of $15.9 million in 2013 is almost entirely noncash.
IDT has over $100 million in net operating loss carryforwards. We will continue using in fiscal 2014 to offset any of our federal tax obligations.
That wraps up my remarks on the quarter. Being that Jonathan and Tom were kind enough to join us on the call and since this is a great opportunity for them to introduce themselves, I would like to invite them to say a few words about Zedge before we take questions.
Jonathan and Tom, take it away.
Tom Arnoy
Thank you, Samuel. So hi, yes, my name is Tom Arnoy.
I'm the CEO of Zedge. Zedge is all about customer engagements.
Consistently remaining in the top 15 speaks to Zedge not being a fad. Our ability to do this successfully is a result of our technology investments focused on discovery and relevance.
Zedge's solution is validated, and Zedge has become a known and trusted name in the mobile content space. Jonathan?
Jonathan Reich
Thanks, Tom. This is Jonathan Reich.
I am the Chief Operating Officer at Zedge. And I really wanted to provide a little bit of perspective.
I'll be brief. But over the past years, Zedge has really invested in its efforts on building a great product and a very loyal customer base.
And we're just now at the threshold where we're starting to focus on transforming that customer base into a real monetization engine that will spin off great dividends and revenues as the company continues to mature. I should comment that monetization from our vantage point is not only something that we generate from the native installed base that we have, but also from the technology investments specific to discovery, which is really what we specialize in and is one of the reasons why our customers continue to come back to us on a regular and consistent basis.
Discovery in general is a much-needed solution in the marketplace today. Going into the app stores is really difficult for most users in terms of finding a new and exciting content.
And the way that we render content and curate content to our users is the magic sauce and something, which we have developed really on a stand-alone basis and allows for us to expand into new verticals or potentially to license that capability to other companies that need to better organize their information and present that content to their users. Just by way of example, some funding or valuation -- from a valuation perspective, there's a company, a private company by the name of Quixey, which focuses on discovery.
Just earlier today, they announced that they secured a $50 million Series C round of financing to continue their development and their commercial buildout. Dating ourselves a little bit, Apple acquired a company by the name of Chomp, which was essentially a pre-revenue company around 2, 2.5 years ago for $50 million in order to help Apple better organize and present and render the contents they have in their App Store to users.
And we believe that Zedge is really in the right space today in an explosive market that can deliver great returns for our investors, provided that we're giving the growth capital that we need in order to mine this opportunity. Thank you so much for your time.
And I think it's time for the moderator to bring on question-and-answer session.
Operator
[Operator Instructions] And our first question comes from Jay Srivatsa at Chardan Capital Markets.
Jay Srivatsa - Chardan Capital Markets, LLC, Research Division
Samuel, it looks like the Boss Revolution products are growing pretty nicely for you. You've said, I think, 75% of all Retail Communications revenues.
Maybe you can share with us what are your plans for expansion of Boss into other geographies, and when do you hope that to play out?
Samuel Jonas
Well, we're already in -- I mean, I would say over half a dozen countries outside of the U.S., and I don't expect that we're going to be exponentially internationally in the short-term, although we just launched Canada. I think that in terms of geographies that are less fully mature, we definitely believe that California and Texas are much less mature for us than the northeast, and we're investing heavily in bringing on many more salespeople, advertising, et cetera.
Those are the main areas that we're expecting in a large growth firm.
Jay Srivatsa - Chardan Capital Markets, LLC, Research Division
All right. In terms of payment services, money remittance aspect of it, you mentioned several cards that you're planning on launching, what's the timeline on these things?
I mean, do you expect money remittance to start to become material for IDT overall by end of fiscal '14, or is it more longer term? Help us understand that.
Samuel Jonas
I think that it's more of a 2015, 2016 event. I mean, we don't give projections, but I mean, we believe that payment services in general will be half of our EBITDA within the 3 to 5 years from now.
So $20 million to $25 million EBITDA would be great from that business over the next couple of years.
Jay Srivatsa - Chardan Capital Markets, LLC, Research Division
All right. In terms of minutes of use, it looks like the Wholesale Termination Services revenues appeared to be dropping off on a year-over-year basis.
As you look at fiscal '14, do you expect Boss to make up some of the difference? Or do you expect some modest increase in Wholesale Termination as some of the Asian -- South Asian destinations traffic starts to increase?
Samuel Jonas
I mean, we definitely, I mean, expect increased traffic from Boss Revolution PIN-less. I mean, it doesn't affect the revenues for wholesale, but we expect wholesale to hold on to the business, maybe even grow it.
As I said, it's really -- it's based on what carriers do. I mean if carriers raise rates, tremendously people call less.
If they lower rates, people call more. But as we also said, it doesn't really have an impactful -- it's not really very impactful on the bottom line, one way or the other.
Jay Srivatsa - Chardan Capital Markets, LLC, Research Division
All right. Question for the Zedge guys.
Some of these wallpaper and ring tone apps are pretty notorious for some of the adware that shows up. How are you positioned in terms of managing some of these advertising tactics, and how do you ensure a good user experience?
Samuel Jonas
Tom, would you like to take that?
Tom Arnoy
Yes, I'm afraid if I heard the first part of the question.
Jay Srivatsa - Chardan Capital Markets, LLC, Research Division
Okay, let me repeat. What I was saying is that some of these apps for wallpaper and ring tones are pretty -- have a pretty bad reputation for adware, specially shady advertising tactics and stuff like that.
The question was, how do you manage that and how do you protect the consumer from not getting hijacked into a different website and make sure that their experience is positive?
Jonathan Reich
Okay. So yes, first of all, we are validating our partners.
We also have a lot of direct relationships. We -- so we run and control the advertising, happening inside our inventory.
So we're certainly paying a lot of attention to that and our user's trust is very, very important to us. So we queue a -- like all the advertising partners.
And we, more and more, replace networks with direct relationships and run the advertising ourselves. I don't know if that answered your question.
Jay Srivatsa - Chardan Capital Markets, LLC, Research Division
Sure. Samuel, just on the spin-off of Zedge itself.
I mean, looks like it is just beginning to start to contribute to IDT's revenues in a meaningful way. What's the urgency in the spin-off, and why now?
Samuel Jonas
I don't think that we're urgent. I mean, as you said, it's doing quite nicely.
I mean, it actually slightly adds to the bottom line as well. I think that it's -- frankly, I think it's not valued appropriately inside of IDT.
I think it's worth -- maybe it's worth as much as IDT in the right hands, and that's really the reason. And I think it's -- they provide an incredible user experience for their users that they're currently only on one platform materially.
The games vertical is just starting to grow, and that's where most of the revenue comes from. The apps hasn't even been launched yet.
And that too will be material. And we think that they'll continue to do very well inside of IDT.
But we think that they might do even better with more capital invested in them to continue that growth trajectory.
Jay Srivatsa - Chardan Capital Markets, LLC, Research Division
All right. Last question for you, Marcelo.
Looking at the financial -- looking at this right, it looks like those pretty hefty tax bill this quarter, which seems to have affected earnings quite a bit. Can you help us understand what happened to the tax line, and what do you expect the tax rate to be as you look at 2014?
Marcelo Fischer
Sure, hi, Jay. First of all, thank you for joining us on the call.
Yes, indeed the tax line was a bit higher than we saw in previous quarters. That will reflect, to some extent, good news in terms of how IDT, especially in the U.S., is progressing in terms of profitability.
Right now, our effective tax rate is around 47%, that's what you see for the full year in today's filings in today's release. And we probably should be using about 47% going forward.
And the main reason why the effective tax rate is relatively high and became higher over the last quarter, is that the U.S. becoming more and more profitable.
And therefore, we need to make a provision for taxes in the U.S., and of course, we're utilizing our NOLs and our deferred tax assets to cover that, and does not result in any cash taxes liabilities in the U.S. While as the same time, in our overseas operations, we have certain losses from a -- on the bottom line net income and that -- for which we cannot take a tax benefit because they have a full valuation allowance on the tax NOLs.
And because of that, when you combine the consolidated basis, losses overseas plus very high pre-tax income here in the U.S. and growing, that will result in a higher effective tax rate.
Operator
Our next question comes from Rob Koehn at Ivy Lane.
Robert W. Koehn - Ivy Lane Capital Management, LLC
Just had a few -- a couple of housekeeping questions, and then I want to move on to the division. So starting out, from a cash perspective.
The $147 million of cash, going through the cash flow statement, it looks like you've already allocated the $15 million of cash to Straight Path spin-off, is that right?
Marcelo Fischer
That's correct. The cash on the balance sheet on July 31 excludes the $15 million that went with SPCI.
Robert W. Koehn - Ivy Lane Capital Management, LLC
Okay, great, great. A phenomenal cash generation.
Going through the cash flow statement, it looks like roughly $60 million of cash from operations and $15 million of CapEx, so $45 million is pretty strong. Next, talking about Boss a little bit and pretty -- great presentation that you guys put out a few days ago, I mean, I don't know how many people saw that in the 8-K.
But one of the things you talked about with Boss was growing your margins by getting closer to the consumer. What that kind of sounds like is maybe after a consumer has activated his Boss account, maybe through the mobile apps or through the computer, they might recharge that account through -- directly with Boss, directly with you guys.
Is that kind of what you're talking about in terms of getting closer to the consumer to grow margins?
Samuel Jonas
Yes, I mean, that's definitely a large part of it. I mean, I think, in that sense, I mean, you're now able to actually go out and see the product.
I mean, you can -- as I said, during the earnings prerecord, we'll call it, you can go and download both our iOS and Android FMC, how it gets closer to the consumers. But it's also in terms of a variety of ways, I mean, frankly, we're starting to do a lot more friends and family-type referrals.
So inside of the app, now it says, when you suggest to a friend of yours that you -- that they join Boss Revolution, you're going to get 10% added to your calling balance for every dollar that they spend. And that's a lot less than we pay in distribution cost for a customer we might not have already gotten.
And we then have their email address and their, obviously, their phone number. And we can get closer to them with other offers and money remittances and prepaid GPR cards, et cetera.
I mean, one of the things that we try to do every day is to a, strengthen the relationship we have with our distribution because they're the key to our success. So we never ever try to compete with them.
So all of our products try to get the consumer both to come to us directly and to go to the retail stores. And I think we've been pretty successful at it to date and we continue trying.
Robert W. Koehn - Ivy Lane Capital Management, LLC
Right, right. And so, I guess my understanding is the bodega or the convenience store that sells, that makes the original sale of the Boss account is going to get a commission regardless, say, if you sign up in the store, even if you recharge or use the app, but that's just a lower commission...
Samuel Jonas
That's correct. I mean, the person that -- the distributor store that opens the Boss Revolution account will get commission on that account, no matter where that person recharges, whether or not he recharges in that store or online.
Robert W. Koehn - Ivy Lane Capital Management, LLC
And so how much -- obviously, I guess for competitive reasons, you haven't kind of disclosed the margins on Boss. But can you give any -- give us any direction as to how much margins might be able to improve because of this phenomenon of getting closer to the consumer?
Samuel Jonas
We didn't discuss on the call. I mean, I wish that we discuss before the call whether or not we would disclose it.
So therefore, I guess, if we decide to, we'll do maybe a separate 8-K about it. But at this time, I'm not going to disclose it.
Robert W. Koehn - Ivy Lane Capital Management, LLC
Okay, okay. And then going to -- I mean, just, we've been tracking the quarterly growth in Retail Communications for the last -- going back to 2010.
And this is -- this looks like the fastest growth basically that you've had. I mean, this is 20% basically year-over-year and 6.6% sequentially.
It almost looks like it's accelerating a little bit. I mean, in terms of dollars it's up almost $11 million sequentially, which is by far, the biggest sequential growth quarter you've had.
I mean, what's driving that? Is it California?
Is it Texas?
Samuel Jonas
I mean, again, I don't think that the growth has -- I mean, has grown tremendously. I mean, maybe it is slightly up.
I don't have the chart in front of me. But it's definitely, I mean, continuing to push it everywhere and any way we can.
I mean, and again, we expect that all of the new ways that we're trying to get customers are going to pay off. But I think Marcelo has something to say.
Marcelo Fischer
Yes, I mean, obviously, Retail Communications vertical have been growing -- have been driven by the PIN-less product in Boss Revolution. You're correct, it's up 20% year-over-year.
We believe it probably will continue to grow double digits. We expect that to happen.
We're putting a lot of investment behind it, thinking about this day in, day out. We probably would say that probably the rate of growth at some point will probably start declining just because the baseline of that -- on which it is growing, and now is becoming a much higher baseline, no question about it.
But our TPS business did $1.6 billion in 2013. We would surely like this to be at the $1.7 billion for telecom by the end of next year, if not more.
Robert W. Koehn - Ivy Lane Capital Management, LLC
Right, right. And Marcelo, why are you on -- and the just kind of going off topic, going back to the NOLs, what is the rough NOL balance right now?
You said over $100 million. What is it?
Marcelo Fischer
Yes, I mean, we have total NOLs at this point of roughly about $170 million that we could utilize over the next 15-plus years. Some of those NOLs, at this point, we have already reflected them in our balance sheet as deferred -- in the form of deferred tax assets.
But most of it, okay, still -- we still have a valuation allowance against it, but they are fully available for us to utilize.
Samuel Jonas
Yes, I mean, we really could use most of it this year for a sale of something.
Robert W. Koehn - Ivy Lane Capital Management, LLC
You'd like to use it for the sale of something?
Samuel Jonas
Yes.
Robert W. Koehn - Ivy Lane Capital Management, LLC
What are you going to sell?
Samuel Jonas
Who knows, Zedge maybe. God willing.
Robert W. Koehn - Ivy Lane Capital Management, LLC
Okay. Just looking at it, it's obviously, for a sale, but I mean it would seem like you're not going to be paying cash taxes for everything else equal for a few years at least, right?
Or maybe you grow and ...
Samuel Jonas
Everything else equal, that's the case.
Robert W. Koehn - Ivy Lane Capital Management, LLC
Okay. Now jumping over to Zedge or to -- not to -- to Fabrix, I noticed that your R&D was up $0.5 million sequentially, so that call it 30% sequentially.
Is that -- I mean, that's pretty strong R&D growth. Is that -- are you anticipating some new customers there?
Or you talked a little bit about the sales pipeline...----
Samuel Jonas
The answers we're definitely -- we definitely are. We're also expanding into new verticals, as we've said in the past.
I mean, security is one of the main things. They have over 85 engineers right now in Israel.
So the answer is it's really an expansion of engineering, and we're going to -- we hope it pays off in multitudes.
Robert W. Koehn - Ivy Lane Capital Management, LLC
Okay. I mean, directionally, I mean, how do we -- I mean, I know you haven't given guidance, but for investors, how can you -- how can we kind of quantify the opportunity there?
I mean, that sort of a black box, it's this software company that sort of operates with, I guess, IBM is the primary partner for now at least. How do you quantify the opportunity, or how should we quantify the opportunity?
And then what do you think that it might be worth to investors at some point?
Samuel Jonas
I mean, it's really hard for me to say. I mean, I think it's our most valuable asset.
I mean I hate to say that while the folks from Zedge are on the phone, but I mean, I've always told you this in the past, I think Fabrix is really terrific. The fact of the matter is, is I really don't -- I can't give you an answer.
Robert W. Koehn - Ivy Lane Capital Management, LLC
Well, how much -- and let's maybe put it, like how much -- when you look at the size of the market you're going after, how much revenue do you think a business like that could generate in the next couple of years?
Samuel Jonas
I mean, it's hundreds of millions. I mean, a single client could generate from $20 million to $100 million.
So it's not impossible that it could be hundreds of millions.
Robert W. Koehn - Ivy Lane Capital Management, LLC
Okay. From your lips to God's ears.
And I guess, finally, and I'll get back in queue, for the Zedge guys, how big do you think that, that business can get? I mean, obviously, you're just now starting to ramp.
It would seem like a business that would scale cash flow very quickly as revenue started to grow and that margins could end up being pretty high in a business like that. Do you have thoughts on that?
Or is there a business model or a business plan that kind of outlines how you think that business could grow in the next few years?
Jonathan Reich
Sure, this is Jonathan Reich. So we're actually in the midst of working with financial advisors.
But I will say if you take a look at the overall apps marketplace and specific to that, you take a look at the portion of revenues that are generated from games through -- in app purchases and the like, that is the overwhelming majority of revenue that comes out of the app marketplace today. And specifically, what we are focusing on from an end customer perspective is really serving as a very valuable distribution platform.
Everything is non-incented. So we bring high-value customers to the advertisers and to the app developers.
And to highlight what Tom had said earlier, we have really been successful in converting advertisers that had been buying inventory through third-party networks and becoming direct advertisers of ours, not on a 1- or 2-month basis, but on a recurring basis. So as we continue to expand, as we launch on iOS, and increase our user base there and really most, importantly, to a certain extent, as we continue to improve and increase the engagements that we have with each customer, either from the existing content that we have or by rolling out new verticals, we expect that the reward will be very visible not only at the top line, but also at the bottom line.
I should also point out that our revenues are true revenues. These are not grossed-up revenues like you'll see out of many app networks, where they've got partners that are going to take a 70% or 80% cut.
So what you see with us is truly what you get. And the opportunity is one, which to your point, we believe truly does scale.
Separate and apart from that, that does not address the technology piece of this where with the right capital investment, we believe that we can take the recommendation engine that we have built and productize that so that third-party apps can take advantage of that in terms of their offering and ultimately provide a better user experience by creating whatever contents or advertising they offer to their end-users accordingly. And that's something, which is really at a very early stage, but is one of the things that we would want to invest in with the outside funding coming in.
Robert W. Koehn - Ivy Lane Capital Management, LLC
Okay. And maybe one more question for Marcelo, if you don't mind.
Just looking at adjusted EBITDA for the core business. So if you take out Fabrix, for instance, take out all other, let's take out all other, that was $1.1 million of loss in the fourth quarter.
It looks like your run rating, what, probably close to $11 million a quarter in adjusted EBITDA excluding all other?
Marcelo Fischer
That's correct.
Robert W. Koehn - Ivy Lane Capital Management, LLC
Okay. So say, you're talking about double-digit growth next year for Boss, I would -- everything else equal with margins, should we assume that EBITDA probably grows double digits as well?
Samuel Jonas
I don't want to say that. I mean, again, there's a lot of investment necessary, especially in money remittance in, I mean, bill pay, in international bill pay, et cetera that, both in terms of actual machines that we need to put into all these stores, et cetera, as well as technology investment.
So I mean, again, we definitely feel comfortable saying that we can, at least, meet what we did this past year. Obviously, we try to do better, but we don't want to guarantee anything.
Marcelo Fischer
Yes, I mean, it really depends on the amount of SG&A and CapEx, not much investment, that we've tried to accomplish this year. I mean, we do see still a lot of opportunity to grow Boss, to grow the products that can be sold in the Boss platform, to increase the awareness of the Boss Revolution name, to more heavier, more tactical marketing advertising campaigns.
We are trying to really create that mix of on one hand generating strong short-term cash flow and sharing those cash flows with our investors and at the same time, taking a lot of the cash flow generation and trying to reinvest in the business to create a very solid brand and to improve the longevity and the health of the business.
Operator
And our next question comes from John Rolfe at Argand Capital.
John Edward Rolfe - Argand Capital Advisors, L.L.C.
Just 2 quick questions. Did you guys disclose what Fabrix revenue was in the quarter?
Samuel Jonas
I think it's under all other.
John Edward Rolfe - Argand Capital Advisors, L.L.C.
Okay, but can you tell me how much of all other it was or no?
Marcelo Fischer
So almost everything under all other is Fabrix at this point.
John Edward Rolfe - Argand Capital Advisors, L.L.C.
Okay, great. And then, secondly, just one other quick question.
Earlier did I hear you right that you said you thought or hoped that payment through the Boss platform could be like a $20 million EBITDA business a couple of years out?
Samuel Jonas
Yes.
Operator
At this time, there are no further questions. Thank you for attending today's presentation.
You may now disconnect.