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IDT Corporation (NYSE:IDT): A Diversified Conglomerate Poised for Sustainable Growth
Published on September 24, 2024 | Ticker: IDT

IDT Corporation (NYSE:IDT) is a diversified conglomerate with a portfolio of high-growth, high-margin businesses that are steadily becoming more significant contributors to its consolidated results. The company's three key segments - National Retail Solutions (NRS), net2phone, and Fintech - have delivered strong performances, driving consistent increases in IDT's consolidated gross profit over the past four quarters.

In the latest quarter ended April 30, 2024, IDT reported annual net income of $40,492,000 and annual revenue of $1,238,854,000. The company's annual operating cash flow stood at $54,140,000, while its annual free cash flow reached $32,182,000. These robust financial metrics underscore IDT's ability to generate sustainable growth and profitability.

Business Overview

NRS, which represented 8.4% of IDT's total revenues in the nine months ended April 30, 2024, is an operator of a nationwide point-of-sale (POS) network providing independent retailers with store management software, electronic payment processing, and other ancillary merchant services. NRS' POS platform also provides marketers with digital out-of-home advertising and transaction data.

The net2phone segment, which accounted for 6.8% of IDT's total revenues in the nine months ended April 30, 2024, is comprised of net2phone's integrated cloud communications and contact center services. The segment has been a steadily growing contributor to IDT's bottom line, generating over $2 million in adjusted EBITDA in the latest quarter, more than double the year-ago level.

IDT's Fintech segment, which represented 9.6% of total revenues in the nine months ended April 30, 2024, is comprised of BOSS Money, a provider of international money remittance and related value/payment transfer services, as well as other smaller financial services businesses. The Fintech segment achieved its first adjusted EBITDA positive quarter in the latest period, driven by the improving economics of the BOSS Money business.

Financials

IDT's three high-growth, high-margin businesses have been the primary drivers of the company's improved financial performance. In the third quarter of fiscal 2024, the NRS segment more than doubled its income from operations and adjusted EBITDA year-over-year, while net2phone's adjusted EBITDA also doubled. The Fintech segment achieved positive adjusted EBITDA for the first time, reflecting the strong growth and profitability of the BOSS Money business.

The company's consolidated gross margin improved by 310 basis points in the latest quarter, as the higher-margin NRS, net2phone, and Fintech segments became more significant contributors to IDT's overall results. This transition has enabled the company to deliver stronger total bottom-line performance.

Liquidity

As of April 30, 2024, IDT had cash, cash equivalents, debt securities, and current equity investments of $174.0 million and working capital (current assets in excess of current liabilities) of $130.7 million. The company's cash flow from operations and the balance of its liquid assets are expected to be sufficient to meet its anticipated working capital and capital expenditure requirements during the twelve-month period ending April 30, 2025.

IDT's capital expenditures were $13.6 million in the nine months ended April 30, 2024, and the company currently anticipates that total capital expenditures in the twelve-month period ending April 30, 2025 will be $17.5 million to $20 million. The company expects to fund these capital expenditures with its net cash provided by operating activities and cash, cash equivalents, debt securities, and current equity investments on hand.

Segment Performance

NRS Segment

NRS' revenues increased 31.0% in the nine months ended April 30, 2024 compared to the same period in the prior fiscal year, driven primarily by revenue growth from its merchant services, as well as the expansion of its POS network. The segment's income from operations and adjusted EBITDA more than doubled year-over-year, as it continued to benefit from the growth in its higher-margin revenue streams.

During the latest quarter, NRS added 1,600 net new POS terminals, surpassing 30,000 active terminals and cementing its position as the largest POS network for convenience stores in the country. The segment is also making progress on several initiatives to improve per-terminal economics, including bundling more terminals with its NRS Pay payment processing solution and successfully upselling existing customers to higher-revenue payment processing and SaaS plans.

net2phone Segment

The net2phone segment's revenues increased 14.7% in the nine months ended April 30, 2024 compared to the same period in the prior fiscal year, driven by growth in subscription revenue, particularly in the U.S., Mexico, and Brazil markets. The segment's income from operations and adjusted EBITDA also improved significantly, reflecting the benefits of its operating leverage as the business continues to scale.

net2phone has been focused on enhancing its customer and channel partner portal to enable deeper self-management and account administration, which has increased user convenience while decreasing demands on the organization. As a result, the segment's combined selling, general, and administrative expenses and technology and development costs have declined as a percentage of its revenue in each quarter this fiscal year.

Fintech Segment

IDT's Fintech segment, which includes the BOSS Money business, reported a 38.8% increase in revenues in the nine months ended April 30, 2024 compared to the same period in the prior fiscal year. The segment's income from operations, however, declined due to increased selling, general, and administrative expenses, as well as technology and development costs.

The BOSS Money business continued to expand its transaction and revenue growth rates, which were already well above industry averages. The company's growth strategy for BOSS Money is three-pronged: expanding its agent network, cross-selling to its broader BOSS ecosystem, and improving customer acquisition efficiency. These initiatives have enabled BOSS Money to double its transaction volume over the past eight quarters and achieve its first adjusted EBITDA positive quarter in the latest period.

Traditional Communications Segment

IDT's Traditional Communications segment, which includes its IDT Digital Payments, BOSS Revolution Calling, and IDT Global businesses, saw a 11.5% decline in revenues in the nine months ended April 30, 2024 compared to the same period in the prior fiscal year. The segment's income from operations also decreased, as the company continues to focus on maximizing cash flow by reducing costs and streamlining operations in its legacy voice and wholesale communications businesses.

While the market for paid minute communications continues to decline, IDT has stabilized its IDT Digital Payments business in recent quarters and is working to return it to growth through new applications and pricing changes. The company is also rolling out pricing changes for its international mobile top-up products to various corridors, which have so far resulted in improved profitability.

Geographical Breakdown

IDT's international operations accounted for 24% of its consolidated revenues in the nine months ended April 30, 2024, down from 28% in the same period of the prior fiscal year. The company's foreign currency exchange risk is somewhat mitigated by its ability to offset a portion of these non-U.S. Dollar-denominated revenues with operating expenses that are paid in the same currencies.

The company's revenues from the United States represented 76% of its total revenues in the nine months ended April 30, 2024, up from 72% in the same period of the prior fiscal year. This shift reflects the stronger growth of IDT's domestic businesses, particularly NRS and net2phone, compared to its international operations.

Outlook

Looking ahead, IDT's management is very excited by the potential for sustainable profitable growth in its three high-growth, high-margin businesses - NRS, net2phone, and Fintech. The company expects these segments to continue to become more significant contributors to its consolidated results, gradually enabling it to deliver stronger total bottom-line performance.

In the Traditional Communications segment, IDT is focused on stabilizing its IDT Digital Payments business and improving its profitability through cost-cutting initiatives and pricing changes. While the market for paid minute communications continues to decline, the company believes it can maximize cash flow from this segment by streamlining operations.

Overall, IDT's diversified portfolio of businesses, strong liquidity position, and focus on high-growth, high-margin opportunities position the company well for continued success in the years ahead.

Risks and Challenges

IDT faces several risks that investors should be aware of, including the potential for one or more jurisdictions to assert that the company has liability for periods for which it has not collected sales, use, or other similar taxes. This could materially and adversely affect the company's business, financial position, and operating results.

Additionally, the company's investments in debt and equity securities, including hedge funds, carry a degree of risk and depend on the ability of its investment managers to accurately predict price movements. Volatility in the securities markets could adversely impact the value of these investments.

Conclusion

IDT Corporation is a diversified conglomerate with a portfolio of high-growth, high-margin businesses that are steadily becoming more significant contributors to its consolidated results. The company's three key segments - NRS, net2phone, and Fintech - have delivered strong performances, driving consistent increases in IDT's consolidated gross profit and positioning the company for continued success in the years ahead.

With a robust liquidity position, a focus on sustainable growth, and a diversified business model, IDT is well-equipped to navigate the challenges and capitalize on the opportunities in its various markets. As the company continues to execute on its strategic initiatives, investors can look forward to IDT's continued transformation into a more profitable and resilient enterprise.

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