Good evening, and welcome to the IDT Corporation's Second Quarter Fiscal Year 2021 Earnings Call. In today's presentation, IDT's management will discuss IDT's financial and operational results for the 3-month period ending January 31, 2021. [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 question-and-answer 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 either to update any forward-looking statements that have made or may make or to update the factors that may cause actual results to differ materially from those they forecast. In their presentation or in the question-and-answer session, IDT's management may make reference to non-GAAP measures, including adjusted EBITDA, adjusted EBITDA less CapEx, non-GAAP net income or 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's website. The earnings release has been filed also on the Form 8-K with the SEC. I would now like to turn the call over to Mr. Jonas. Please go ahead.

Thank you, operator. Welcome to IDT's Second Quarter Fiscal Year 2021 Earnings Call covering results for the 3 months ended January 31, 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 March 12. IDT delivered another strong quarter, including significant year-over-year increases in consolidated revenue, income from operations and EPS. Consolidated revenue increased $16 million to $340 million. It is our third consecutive quarter of year-over-year increases in revenue and our sixth consecutive quarter of year-over-year increases in revenue less direct cost of revenue. Consolidated income from operations increased $11.6 million to $12.9 million this quarter, powered by a $9 million year-over-year increase in revenue less direct cost of revenue. Consolidated SG&A expense meanwhile was substantially unchanged year-over-year. We are successfully reducing the overhead in our Traditional Communications segment and redeploying those resources to support and accelerate the growth of our higher-margin businesses in the Fintech and net2phone-UCaaS segments. Fully diluted EPS increased to $0.51 from $0.04 in the year-ago quarter. The quarter's results were highlighted by year-over-year revenue expansion from our 3 higher-margin businesses, National Retail Solutions, BOSS Revolution Money Transfer and net2phone-UCaaS. Within our Fintech segment, NRS added over 1,300 units to its POS terminal network this quarter. In the year-ago quarter, we added less than 800 units. We've picked up the pace of network expansion significantly. At January 31, NRS had over 13,700 billable units in the network. NRS' quarterly revenue increased by over 150% year-over-year to $5.2 million, led by growth in payment processing services and in digital out-of-home advertising sales. Although we are in the early stages…

[Operator Instructions]. And the first question will come from Brian Warner [ph], Investor.

I have two questions, and the first is actually a two part question. But considering -- I'm just wondering if I can get a little bit of insight into your thinking about maybe appropriate timing for a Fintech spinoff. What sort of metrics you might want to hit operationally before you think that's ready? And sort of second part of the same question would be when do you think the net2phone-UCaaS business might be ready for that? And then just finally, I'm wondering if you can give us a little color on -- your traditional phone business seems to -- congratulations, by the way, actually, all of your businesses looked good. But I'm just wondering, in your traditional business, where you seem to be showing better revenue growth and very tight on costs, can you give us sort of any sense on what you think the outlook metrics you might hold? I mean, this quarter, you generated, I think it was over $18 million in essentially free cash flow there. And I'm just wondering what you think sort of the outlook for that business is.

Okay. This is Shmuel. I will try to remember everything and answer your questions. And Marcelo, feel free to either step in at any point or if you want to better answer that after I'm finished, you're welcome to do so as well. So I believe that our goal is to spin off net2phone sometime, I would say, before the end of the calendar year, possibly slightly after. We've done quite a number of spinoffs, as you know, but they do take a lot of work. And the pandemics and building businesses come first, unfortunately, but that is our goal. And frankly, we don't really have enough bandwidth to do 2 spinoffs all at once. So I would say that we can't really even start to think about the second one until we finish the first one. But we're also building other new businesses in the background as well.

That sounds great.

I think that answers the first part. And then as far as your question about cash flow and what can you expect from the business going forward, or I'll call it, the traditional business going forward, again, we don't give forecasts on what our results will be. But we feel that the business is doing very well. I mean, again, I don't know if some of it has to do with COVID and people wanting to stay in touch and share resources back home more than they would if the pandemic wasn't going on or if we're just doing a good job operating the business. It's hard for me to give you much more insight, because frankly, I don't know. But all I can say is we come in every day and we try hard, and we feel pretty confident in the strength of the traditional business going forward.

Okay. And some of the stuff that I've read on the traditional business, I guess, I'm curious to what extent are the free services and the WhatsApps of the world maybe impacted than less than some people would have thought.

Well, I mean, maybe so. Again, I believe that free services are -- I mean I've said this for many years, is our #1 competitor, is not other PIN-less companies or other companies, it's free. That is our biggest competitor. And again, I think that we provide a great service to our customers. The quality that you get with us versus free options are, in some countries, night and day. And in other countries, frankly speaking, the free really has basically made us uncompetitive. So it's really a market-by-market answer.

Terrific. I'm sorry, go ahead.

It's Marcelo. Just a few comments on top of Shmuel's in terms of the spinoffs. Obviously, our focus right now is on net2phone with our efforts on it. We haven't really done much thinking about the Fintech segment. And even when we start that process, post-net2phone, discussions will be held at that time as to whether a potential spinoff would occur for the entire Fintech segment or just of the NRS part of the business. But that's to be determined probably a year-plus from now, those discussions will take place. And in terms of the traditional business, so yes, the business has shown stronger resilience than what we had expected. COVID has helped that process as well, particularly on our PIN-less business. The margins on PIN-less have improved as more of our big charges are shifting toward digital direct-to-consumer in terms of the mix of retail where we have better margins. Our IMTU business is doing extremely well. It continues to be very strong. And we believe that, that will continue to grow in the coming years. And the combination of IMTU together with PIN-less will more than offset, we believe, or continue to offset declines that we see in our revenues and margins happening on the Wholesale Carrier side. Wholesale Carrier has been affected by COVID, but the fact that more and more of the calling that goes on happens on VoIP over the top, video conferencing and other mode of communication, so we do expect Wholesale Carrier revenues and margins to continue to decline, but hopefully, we'll be able to offset those declines with the strength of the other 2 businesses. And because of that, we are expecting that this strong cash flow generation that we have seen from the Traditional Communications business in the $40 million to $45 million range when you look at EBITDA less CapEx, that, that could probably continue to quite a long time.

The next question will come from James Smith [ph], Investor.

I had two questions for you. The first was mentioned in the prepared remarks, roughly 50% revenue per terminal increase in the NRS business has been achieved in the last 12 months. If you think very directionally over the next year or two, with the various initiatives you have going on to monetize that business, do you have sort of a house view as to where revenue per terminal may head over the next year or two? And then the second question was specifically as regards UCaaS. Do you have a revenue figure in mind at which you think that business potentially breaks even at the EBITDA level?

No. I have, I guess, a fair amount of knowledge on the economics of how much each NRS terminal brings in. However, it really does vary a tremendous amount, I mean, hundreds of percent difference from what I'll call a store that is not doing merchant processing with us and is maybe in an area where advertisers aren't quite as interested at talking to consumers to an area where advertisers are interested talking to the consumers there and where the merchant processing volume is quite high. So it's really hard for me to give you a very -- an exact answer. Like I mean, it's like saying, what does an average restaurant give you in profit? I couldn't give -- I mean it's going to depend -- I mean you could have a restaurant in Texas right now that has no masks and is completely open and doing -- or you can have a restaurant like in New York that's at, I don't know, 25% to 35% capacity and isn't doing any business. So there isn't a very good answer of what we aim for with each particular store. What I would say is that we expect, over time, our penetration for merchant services in stores to go up significantly. And we've already started to see that, and we expect it to continue. And the amount of services and features that we provide our merchants is really unparalleled for the price. And we've done a lot on the pricing side to differentiate the price that you pay for those services when you get merchant services with it and the price when you don't get merchant services with it. So we're kind of unique in the sense that we don't force you into getting our merchant services. You can get our…

That is very helpful and I appreciate all the color. If I wouldn't mind rephrasing the NRS question slightly differently, I think you mentioned in the most recent 10-K that the business is sort of servicing into the 35,000 merchants into which the Traditional Communications products have been distributed. You're now at, call it, 13,000, 14,000 merchants with the NRS product. Do you see a sort of ceiling on that business over the next year or 2 or 3? And how do you think about the addressable market in terms of number of merchants potentially?

Not at all. I mean I actually think that, oftentimes, people believe that we only go after stores that have sold BOSS Revolution in the past, and that's just not a reality. So a large percentage of our customers, I will say, originally when we started, came from BOSS Revolution stores. And still, to this day, obviously, we have an easier time going into stores that we've been going into for years and selling them. But a huge number of our sales are coming from stores that never sold any IDT products before. So in terms of the amount of stores that we believe is the addressable market, it's in the hundreds of thousands. It's not a 35,000 store number as our addressable market. But we have -- I mean -- but we have done phenomenally well getting into the stores that have been our customers for a long time, because they know that we provide great service and a great product.

The next question will come from [indiscernible].

Congratulations on another great quarter. I just wanted to ask like what's differentiating the National Retail Solution from other point-of-sale companies such as Square? They're obviously bigger companies. So just if you could provide a little bit of color on that, I would appreciate it.

It sounds like you're in the business. Maybe you can provide some color. But I would say that -- I'm hearing an echo, so if you don't mind muting, I apologize. I would say that a couple of things differentiate us. As I talked about just a minute or two ago, one thing that differentiates us is that we don't require you to get merchant services. Square and Clover and Toast, I'll just use three examples, they require you to get their merchant services. And therefore, if a merchant is already in a contract or is hesitant about switching from the bank that they're currently using or any number of reasons that why a merchant wouldn't feel comfortable, we don't force them to switch to our merchant services. We believe that we provide better pricing, better service, et cetera, than even some of our biggest competitors. You can actually get a human being on the phone when you call us. But that being said, we, I'll say, have a softer sell than some of our larger competitors, like the ones you mentioned. I think that our software is also actually -- and it's certainly more purpose-built for the types of stores that we currently serve. That -- I would say that we are planning to sort of augment that in the future in the sense that like, right now, our terminals might not be the prettiest terminals that you can buy. But we are also coming out with a line of what I'll call higher-end terminals that are more aesthetically pleasing than the ones that we currently sell, which we think will fit a whole another segment of stores that you might today not buy our terminals. So that's the thing that we're going to stop selling what we currently sell. I mean we're going to have an additional line of hardware. The other thing is we are in the process of building out a similar, I'll call it, way of getting customers as Square does, which is you can just go and download our app from the App Store and get one of our not dongles or something in that sphere and start using our merchant services. In my opinion, though, like our software is really, in many respects, better than theirs. I know that's a little bit maybe cocky, and in some respects, is obviously not as good as theirs. But we really think that we have an excellent product. It's extremely reliable. I mean we have, knock on wood, as they say, but like 0 outages. And it's just that it's a quality product at a good price. That's really what it comes down to. And we have a great sales team selling it.

The next question will come from Brian Warner [ph], Private Investor.

If I could just get a follow-up on the NRS business. If you think about that business at some point in the future, call it, maybe 3 or 5 years and you think of sort of a reasonably healthy merchant in a reasonably healthy market and if you take bucket merchant services for somebody who takes it, and then another bucket, I guess, is advertising and maybe a third is analytics, can you give any sort of color on proportionately the size of the opportunities, in your mind, what a typical merchant like that might look like in terms of a revenue split between those segments?

I really can't give you a clear answer. I mean as I said, it's really -- it's -- there's so many different dependencies. I mean, again, from an advertising point of view, like it could be -- you have a store that has 3,000 people come into it a day, and for whatever reason, advertisers aren't particularly interested in the city or the street or the demographics of the community in that area and advertising is low. And it could be the same thing for the data. It could be that, I don't know, a beer company really wants to know how their competitors are doing in a specific market, because their sales have declined in that market, and therefore, they're willing to pay us a lot of money for data insights into what's going on in that market. And in a big market where they might be doing really well, they just don't care, because they think that they're doing a good job. On the merchant services, it's much easier, obviously, to model, because there's an approximate amount that we expect to make per dollar swipe, I'll call it, or tap or however you can do it nowadays. But -- and again, that's improved over time as we get bigger and better at it. And we expect that to -- and again, I can't give you -- and I hope I'm sort of answering your question. I mean we don't get questions [indiscernible] is like an exciting night. Usually, I'm off the call in 9 minutes after answer -- after reading my speech. Yes, I mean, if you want -- if you have a follow-up question to it, I mean -- but again, in terms of the market, I think the market is, as I said, enormous. Like -- I mean I really think that we've barely scratched the surface. And I think that NRS one day is going to be way more valuable than IDT is today. And if you're buying into IDT today, you're getting a great deal, because we're getting 3 huge opportunities that already exist.

Right. So Brian, as Shmuel said, it's hard to predict what the mix will be down the road. But one thing is for certain. As we continue progressively trying to go the timing of analytics and our merchant services, those 3 channels obviously have significantly higher margins than just selling the terminal unit and the monthly recurring fee that you get on that. So one thing that probably will be very likely that as NRS continues to grow, both network and the services, is that the gross margin and net margins on this business will continue to increase.

Yes. I mean I'll just add one more piece of color. I mean, as I certainly talked about a little bit earlier, we have changed the pricing with our software so that you're incentivized to go with merchant services. That being said, we've also added a ton of features. And even customers that are getting our merchant services are now adding more revenue to us than they ever had before, because they're able to buy higher plans that include more features. And that's really something that's only happened very, very recently.

[Operator Instructions]. As there are no more questions, this concludes our question-and-answer session and conference call. Thank you for attending today's presentation. You may now disconnect.

Thank you.