Good evening. Welcome to the IDT Corporation's Third Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference call is being recorded. I will now turn the call over to Bill Ulrey of IDT Investor Relations. Bill, you may begin.

Thank you, John. In today's presentation, IDT's Chief Executive Officer, Shmuel Jonas; and Chief Financial Officer, Marcelo Fischer, will discuss IDT's financial and operational results for the 3-month period ended April 30, 2025. After their remarks, they will be happy to take your questions. Any forward-looking statements made during this conference call, either in their remarks or in the Q&A that follows, 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 they 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 in the Q&A session, IDT's management may make reference to non-GAAP measures, including adjusted EBITDA, non-GAAP net income and non-GAAP earnings per share. Schedules provided in the IDT earnings release reconcile adjusted EBITDA, 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 website. The earnings release has also been filed on a Form 8-K with the SEC. Now I'll turn the call over to Shmuel for his comments on the quarter's results.

Thank you, Bill, and thank you, John and Marcelo. IDT's third quarter was solid with strong year-over-year gains while slightly softer than our second quarter, in part because of expected seasonal factors. Year-over-year revenue growth and continued expansion of each of our business segments' bottom line results drove a 133% year-over-year increase in consolidated income from operations, a 57% increase in consolidated adjusted EBITDA and a 290% increase in EPS. At NRS, recurring revenue increased 23% year-over-year, powered by a 37% revenue increase from NRS' largest vertical, merchant services and a 33% increase in SaaS fees, which more than offset a 12% decrease in advertising and data revenue. Income from operations and adjusted EBITDA were both up 29% year-over-year, and the business has generated a record $32 million in adjusted EBITDA over the past 12 months. Looking ahead, we continue to focus on developing new offerings that leverage the NRS platform to enable retailers to compete more effectively with large retail chains. For instance, independent neighborhood retailers have not yet meaningfully benefited from the consumer shift to online ordering and delivery. We are working to change that by integrating our network with online ordering and delivery platforms, enabling retailers on the NRS network to provide hyper-fast local delivery of sundries and prepared foods. The 100 or so retailers we have signed up so far are already receiving in aggregate over 2,000 delivery orders a week. BOSS Money, our remittance platform, increased transactions by 27% and revenue by 25%. The growth rates have been impacted by the deliberate shift we made last summer to prioritize gross profit per transaction in our retail channel rather than market share and by a recent shift in customer preferences towards larger send amounts per remittance through fewer transactions. The Fintech segment, which includes BOSS Money…

Thank you, Shmuel. My remarks on the third quarter's financial results will focus on the year-over-year comparisons in order to set aside seasonal impacts on our business. As Shmuel just mentioned in his remarks, our third quarter was slightly softer than our second quarter and seasonality does factor in our results. For one thing, our fiscal third quarter has just 89 days in years like this one, roughly 3% fewer than the 92 days in our other fiscal quarters. In addition, our February through April fiscal third quarter is typically the lowest revenue quarter for NRS Advertising and advertising budget spend by our customers trend higher over the course of the calendar year. Given that, we are extremely pleased with our consolidated financial performance in the third quarter. We again grew revenue year-over-year. Expansion of our fintech and SaaS businesses more than offset the expected top line decline of BOSS Revolution calling. Gross profit increased 15% year-over-year, reflecting increased contributions from each of our 4 reporting segments and was just under last quarter's record level. Our gross profit margin reached another record high of 37.1%. The robust year-over-year increases in our income from operations, adjusted EBITDA and earnings resulted from the expanding operational leverage of our 3 high-growth businesses and from a positive contribution from our Traditional Communications segment. Traditional Communications adjusted EBITDA margin for Q3 grew to 9.2% from 6.7% 1 year ago. NRS had solid third quarter results. Merchant services revenue increased 37% year-over-year and SaaS fees increased 33%, powering increases of 29% in both income from operations and adjusted EBITDA. NRS' asset financial results would have been even stronger had it not been for a few proactive steps we took during the quarter. Advertising & Data revenue decreased $821,000 or 12% year- over-year, largely because of our…

[Operator Instructions] First question comes from [ Anigo Alonzo ] with Morum Capital.

If I may, I would like to ask a question of each of the fast-growing businesses and another one in capital allocation. I'll start with NRS. Last quarter, you mentioned the additions of the salespeople. There's really interesting numbers in the report today. There's some one hand record terminal revenue when it comes to only purely the product, the terminal itself. And we also see that, that happened despite a lower addition of net terminals. So if you could provide more color on this item in the go-to-market strategy, how you're leveraging your agents versus the third-party distributors now that you have increased the staff? I would really appreciate that.

I think just I would say that more effort was put on bringing both new as well as existing retailers that don't yet have our merchant processing to take it this quarter, and that was definitely helped by many of the new salespeople that we brought on.

Okay. And are you switching towards higher sales cost terminals, maybe kiosk? Or how would you explain the increase over the terminal additions? And also you can add more color on the NRS Pay accounts. That was a record number for Q3, too.

Yes. I mean, again, as I said, it's mostly related to just good sales. It wasn't really anything particularly substantively interesting that I could tell you other than that all around, both from distributors, our existing sales base as well as our new salespeople, they all had strong numbers this past quarter. In terms of the other types of, I'll call it, form factors that we provide in the store, I don't think that those had a material impact this particular quarter.

Okay. And let me move to net2phone. So you launched the AI Agent, and you are probably seeing the first customers on that end. And I would like to know more about what type of customers you're seeing? Are those already net2phone customers or you're getting customers outside of that -- outside of those existing clients?

Most of the customers right now are existing net2phone customers. There's a couple of exceptions to that rule. But we are trying to make sure that it works perfectly for our existing customers, and then we will eventually add on outside parties as well.

Can you provide some color on what type of businesses are purchasing this AI Agent?

We really -- I mean, all different types of customers, everything from call centers to doctors' offices, to accounting firms to collection companies. There's a bunch of others. Again, we're making a bigger effort in the future to sort of verticalize it into some of those areas. We believe accountants have a need for it. We believe that doctors' offices have a need for it and that we could build similar functionality for each of those ones. Same thing for call centers. So we expect it to get a little bit more verticalized over the next year or so. But the sales are really starting to pick up quite a lot, and we're very excited about where it's going to go.

Is the focus going to be a small, medium enterprise?

No, it's going to be both. I mean we have users who are obviously are going to be smaller businesses, and we have users that are talking about using millions of interactions a month.

Okay. Then on BOSS Money, you started this quarter a beta program of the earnings program for the owners in the stores. I think you kicked it in some of your higher traffic stores in the southern part of the country. How did that go? How was the start of that program?

I'm not honestly sure about the results of the program so far. So I don't feel comfortable commenting.

Okay. And then on the last conference that you attended, you mentioned that M&A valuations are attractive. I saw that you recently acquired a really small company for NRS called EG or something like that. I'm not sure how it is pronounced. The -- would we expect any more transactions in the remaining of the year or more bigger transactions? Or is this the one you were referring to in that conference?

No, that was not the one I was referring to in that conference. But I mean, we are definitely looking at acquisitions. We believe that you have to pay the right price to really extract the most value out of an acquisition. So we don't chase things at any price. But if we think that there is good value to be created by having it inside of IDT, we definitely pursue it, and we are pursuing a couple of different acquisitions.

What type of technology did this last acquisition bring to the table?

If you're referring to the small one Lucci, it's a restaurant and technology company.

Okay. And one last one, if I may. And your stock price is slightly higher and you've been repurchasing a lot. Would you still be keen to repurchase shares? Or are you going to consider a one-off dividend in view that you are going to exceed the targets for the year most likely?

I would hand that question off to Marcelo. I mean what I would say is that I think that it's definitely not as cheap as it was when we were buying back earlier. I still think it's a great value. But our capital allocation is also dependent on whether or not we're doing acquisitions or not doing acquisitions. And we'll know more on that over, hopefully, the next quarter.

Yes, Shmuel, as you just mentioned, we believe that repurchasing our stock is a good way of allocating our capital, and we have been doing so. At the same time, okay, we protect our cash to be able to deploy it towards growing the business towards acquisitions. As Shmuel mentioned, the M&A environment right now is quite attractive, and we have been looking at a variety of opportunities in each one of our segments. So to the extent that we decide to deploy that cash in ways to create a lot of value to our shareholders, we will deploy the cash towards growth and M&A. If not, we'll continue to repurchase stock.

Yes. One thing I can tell you for sure is we will not take on debt like some other companies do to take to buy back shares, like we buy back shares with excess cash, not with borrowed cash.

The next question comes from William Vaughan with Corient.

Congrats on the quarter. Really good growth in NRS. It does look like the pace of POS terminal additions, payment processing accounts, merchant service revenue slowing down a little bit. What would you diagnose for the cause of this? Is it economy, industry dynamics, competition? Just any commentary you have on just the slowing pace would be helpful.

Yes. I don't know if I would agree that it's a slowing pace. I mean, I think that the numbers might not have been quite as strong as we had hoped as I sort of indicated in our release. But I think that the numbers are still very strong. And actually, again, just from being closer to like what's happening. A lot of the accounts that we recently signed on, so what I'll call is like the benefit that you're seeing from added accounts don't really hit us in the past quarter. They hit us in future quarters. So I mean, I expect the fact that we've been growing better than previously actually to help us more in current quarters as well as upcoming quarters after that. So I don't actually think that it's slowing down at all.

Okay. That's good color. A couple of follow-ups. Can you just describe how the food delivery, the DoorDash and other services, how that actually works with the point-of-sale system? Is it something with the display where drivers can pick things up easier? I'm just trying to just walk through how it works.

It's a variety of different elements to it. It's not a very simple product. But again, just because this is a call, I'm more than happy to have a call with you after the call to explain it in more detail. But I mean, just because this is an earnings call to give you a very brief description of it, basically, all the orders come into our order management system. And then those are placed into queue on the POS or in the kitchen. And then as things are being either worked on or filled, those notifications are then going back to the different delivery companies and/or somebody who's picking up an order saying hey, the order is ready or the order is in process, et cetera, then come and get it. I mean also on the pricing side, it allows retailers to have different pricing when you use delivery services or when you don't use delivery services, it allows them to price it higher in the afternoon hours when people might be less sensitive to pricing than in the morning when they're more sensitive to pricing. There's a lot of features and functionalities that it has that help get more orders.

That's helpful color. Just a question on BOSS Money. The rate of growth is slow overall, but you had really good growth in the digital channel in terms of remittances. And you mentioned profit maximization in terms of improving profit per transaction. I was just wondering if those profit maximization efforts were really only on the retail side versus the digital side versus it's on both.

It's on both. I mean what I would say is this, there is a dynamic happening, and we -- it's in our earnings release and where transactions are starting to become larger. So where somebody might have sent, let's say, 4 transactions a month previously, they're now sending 3 transactions a month. The amount per transaction has actually grown quite a lot, as we said, year-over-year, like our send volume is up 40%. So if you had -- if that had been, I'll call it, standard size of transactions a year ago, that would have been 40% growth. Because it's being put into larger transactions, I don't think that we completely optimized our pricing to sort of take into account that people are sending fewer transactions of larger volumes. So we are testing different pricing in different regions to help, I'll call it, improve the profitability. And again, assuming that it doesn't hurt growth or retention in the markets that we're testing, we'll roll it out in all of our markets across the country. As far as new technologies, I mean, again, there's many different things that we're doing. I don't want to -- as I said, this is an earnings call, I don't want to spend a lot of time talking about it. But everything from stable coin transfers to wallets in country that we'll be able to have a Visa card link to so people can spend money in country and we make money on interchange. So there again, a variety of different things being worked on that we think will both add to the profitability as well as really improve the user experience.

The next question comes from Alex Rohr with Emmett Investment Management.

On the NRS ads business, now that, that one partner has been turned off, what does the ads business look like on a run rate basis? Can you backfill that demand that was turned off? Or are we can sort of be declining year-on-year for a little bit here?

Again, it's too soon for us to give you like a 100% answer to that question. I mean I would say that we are definitely seeing better numbers so far this quarter than we did last quarter. So our -- I'll call it, our other ad partners are making up quite a fair share of it. It hasn't quite filled the total gap yet. But I'm hoping that the fourth quarter's end, we will have filled it back up. At the same time, we're also expanding our direct ad team, but I think Marcelo wants to say something, I apologize.

Just to correct, we have not completely shut down the programmatic partner, okay? We have just deliberately reduced significantly the amount of sales we do to them because of the current situation. Now that partner was a very large partner a year ago, probably represented more than 20% of our total advertising revenue. Currently, it represents probably about 5%, a much, much, much smaller number. And the fact that the advertising revenues, excluding that partner have been growing quite nicely, about 10% or so for all the other programmatic partners, we are almost there about being able to completely cover for that decline on that one partner by the growth in the other relationships.

We have a follow-up coming from William Vaughan with Corient.

I had a follow-up on net2phone. Where do you guys think that the EBITDA margins on that business can get to over time, like in terms of a mature steady state?

It's not a simple question to answer because, again, we have a lot of new initiatives, particularly with AI Agents and our Coach product that should be launching this quarter. And those have -- we don't have a history, I'll say, of running those programs to sort of know where exactly the margins are going to shake out. My own personal opinion is that they should be accretive by a substantial amount, but it might take a year or 2 because there's a lot of costs in setting up those programs that don't necessarily, I'll say, hit the bottom line in a positive way. Even though we charge for implementation, we charge a very, very low price for implementation. If you were to go and get IT help at Best Buy, it might cost more money than what we charge for AI help. And so essentially speaking, like we are subsidizing the launch of the product by lowering the cost of implementing it for our customers. And that will, over time, probably increase in price once we have more scale. And at the same time, once the customers have been implemented, the usage will hopefully go up quite substantially, and that will obviously add to our margins over time. I know it's not a very quick answer to your question, but that's with more color.

Awesome. And just another one circling back to BOSS Money. I know that we're focused on profitable growth, and we always want it to be profitable. I do want to hear your thoughts on -- with the digital channel, and it is a scaled business, so profitability increases as you get more users and customers. What are your thoughts on actually increasing investment just to get more customers? Just thinking about the landscape of how there's a lot of white space with these legacy players that are mostly retail like Western Union and others. There's a lot of customers to grab there. What are your thoughts...

I think it's a very fair point. And again, it's budget season, and we are definitely looking at our unit economics, our cost of acquisition, all the types of fun things that you get to try to figure out the season. And what I would say is that like if we don't make any acquisitions in any of these businesses, like we will definitely grow organically at a much faster pace by investing more in acquisitions. And sometimes, I have to say that, that even though it's a slower and we'll call it, harder grind, I actually think that sometimes it's better to grow things organically than do acquisitions because acquisition is going to always have things that go wrong as opposed to like when you're doing it yourself, you kind of know what you're comfortable with and how to do it. So yes, I mean, it's budget season, and I would say that, that is definitely going to be part of our plan into next year.

And just to go back a little bit on your comment about net margin growth for net2phone. I think just important to bear in mind as you do your models that for the past few years, we have been investing roughly about $20 million to $25 million each year in customer acquisitions for net2phone. And most likely -- against budget season, but most likely, we will continue to deploy those type of dollars as long as the IRRs for every one of our markets continue to be very attractive. And as we continue to grow with that type of investment, you have seen over the past few quarters how rigid we are in terms of maintaining our fixed cost in steady state. So the business really scales nicely as it continues to grow. A few other things to bear in mind is that as the mix of UCaaS and CCaaS continues to change, that would affect the operating margins as CCaaS customers and CCaaS businesses operate at much higher margins than do our UCaaS businesses. And finally, as we hope to introduce and launch and grow AI Agents and other AI initiatives, all of those things could make a big difference in terms of account ARPU growth that could lead again to enhancing the growth in the net margin.

Yes. I mean I'll just add one last thing to what Marcelo already said, which is like I think we're much more focused on net2phone going forward on revenue and gross profit and bottom line profitability than we are on seat growth and what have you. And it's -- and even though you need both to get those results, like we're more -- it's a change in mindset, and I think that it will be reflected positively in the business over the next year.

[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.