IDT Corporation Q2 FY2026 Earnings Call - High-margin segments drive record profits and guidance raise

Operator: Good evening. Welcome to the IDT Corporation second quarter fiscal year 2026 earnings conference call. All participants are now in a listen-only mode. A question-and-answer session will follow management’s remarks. Anyone requiring operator assistance during the conference call should press star zero on your telephone keypad. 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.

Bill Ulrey, Investor Relations, IDT Corporation: 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 three months ended January 31, 2026. 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 during 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 adjusted measures, including adjusted EBITDA, adjusted EBITDA margin, non-GAAP earnings per share, NRS’s Rule of 40 score, and adjusted net cash provided by operating activities. Schedules provided in the IDT earnings release reconcile these non-GAAP measures to their 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.

Shmuel Jonas, Chief Executive Officer, IDT Corporation: Thank you, Bill, and thank you to everyone who joined the call. NRS and BOSS Money and Net2Phone’s top and bottom lines expansion drove IDT’s strong overall results again this quarter. NRS recurring revenue grew year-over-year, powered by large increases in merchant services and SaaS fee revenues. This quarter, we continue to make progress on initiatives to drive additional merchant services and SaaS growth and expand our delivery partnerships. We are also developing offerings for differentiated retailer verticals. Advertising and data results came in lower than we expected after decreases in CPM rates pressured revenues. At BOSS Money, our digital channel continued to outperform relative to the industry as transactions increased 17% year-over-year. The new federal remittance tax, which applies mainly to transactions originated with cash, went into effect on January first.

As expected, the tax implementation has accelerated customer migration from the lower margin retail channel to the higher margin digital channel, and you will begin to see those positive impacts next quarter. Net2Phone’s bottom line continues to benefit from its strengthening gross margins and operating leverage. This quarter, we also got a boost from favorable foreign exchange rates. Looking ahead, our AI offerings are generating very positive customer reviews and increased spend. Based on these early results, we are writing a new offering, Agentic AI, seamlessly integrated with Unified Communications with a go-to-market strategy targeting both direct and channel sales to small and medium businesses. Traditional Communications remained a strong cash generator. The segment contributed $19 million in Adjusted EBITDA during the second quarter, a decrease from the year ago quarter, but approximately the same as in the prior two quarters.

Because of our recent strong financial and operational performance growth and outlook and balance sheet, we again repurchased stock in the second quarter, and our board has increased our annual dividend by 17% to $0.28 per year. Now, Marcelo, who is more of a gifted orator than I, will discuss our financial results. I also just can’t go without saying that our hearts and prayers are with all of our soldiers abroad, and we hope that you come home safely.

Marcelo Fischer, Chief Financial Officer, IDT Corporation: Thank you, Shmuel. My remarks on our financial results for the second quarter of fiscal year 2026 will focus on the year-over-year comparisons to set aside seasonal impacts on our business. IDT achieved record levels in several key consolidated financial metrics in the second quarter. Gross profit, gross profit margin, Adjusted EBITDA, Adjusted EBITDA margin, and non-GAAP EPS. These results were very much in line with our recent year-over-year growth trajectory. The underlying positive dynamic at IDT remains the same as it has been for several years. Namely, our consolidated results increasingly reflect the growing contributions of our three higher margin growth segments, NRS, Fintech, and Net2Phone, while the contributions of our larger low margin Traditional Communications segment become relatively less impactful. To date, we have been pleased by the speed with which each of our three growth segments have increased their cash flow contribution.

In aggregate, these three segments contributed during Q2, 53% of IDT’s consolidated adjusted EBITDA less CapEx, which we view as our proxy for free cash flow, compared to 45% in the year-ago quarter. Given this ongoing rotation, plus our strong results through the first half of the year and our positive outlook, we have begun to increase our allocation to shareholder returns. Shmuel already mentioned the increased levels of our share buyback and our dividend. I just want to add that the increase in our dividend marks the second consecutive year of dividend increases, and we hope and expect to be in a position to continue increasing the dividend in the years ahead. Also of note is that the $15 million of stock repurchases in the first six months of fiscal 2026 put us on track to exceed the rate of share buybacks compared to the preceding years.

We allocated $18 million to share repurchases in all of fiscal 2025, and $11 million in fiscal 2024. Now, I want to discuss our outlook for the remainder of the year. IDT raised its consolidated Adjusted EBITDA guidance for fiscal 2026 from the $141-$145 million range we shared at the start of the year to now being $147-$149 million. At the midpoint, this revised guidance is a $5 million Adjusted EBITDA increase and a 12% increase compared to fiscal 2025 actuals. The guidance increase reflects certain developments in each of our segments. At Net2Phone, our initial guidance made at the beginning of the year was predicated on the assumption that increased investment in AI product development would pressure Adjusted EBITDA growth. It has not worked out that way.

The Net2Phone team have been extraordinarily disciplined and made excellent progress thus far this fiscal year, developing and refining its AI offerings with only modest increases in spend. That approach drove a 37% year-over-year increase in Adjusted EBITDA to $3.9 million in the second quarter, a stronger increase than we anticipated. For the remainder of this fiscal year, we expect Net2Phone’s Adjusted EBITDA growth rate to moderate somewhat as the increased investment in growth initiatives during second half of the year, is expected. At BOSS Money, federal immigration policies and the new federal tax on remittances that took effect on January first have had a massive impact on the remittance industry, no question. The impact has been felt primarily on transactions originated at retailer agents rather than those initiated through a digital channel.

As such, IDT have benefited from an accelerated rotation from higher revenue but lower margin retail channel transactions to relatively much lower revenue but higher margin digital channel transactions. This rotation has also been accelerated by our decision to maximize net new cash generation at BOSS Money retail. As a result, our higher margin digital channel transactions increased at 17% year-over-year. That helped to drive a 15% increase in Fintech segment gross profit in the second quarter. We are also achieving significant cost advantages as the money transfer business continues to scale, specifically by negotiating better terms with our payout agents, as well as by continuing to integrate AI into our back-office operations.

The combination of stronger GP and more efficient operations drove a 44% increase in adjusted EBITDA compared to a year ago, well ahead of the pace we had envisioned in our original guidance. At Traditional Communications, we once again were very pleased by our ability to extract more cash from our telecom businesses. To date this year, our BOSS Revolution calling business has been a true standout. Revenue is down by double digits, as we did expect it and continue to foresee going forward, but gross profit has been rock steady over the past year. The BOSS Revolution team has done an amazing job developing and bringing to market international prepaid calling plans that have significantly improved the unit economics of this business.

Helping traditional business Adjusted EBITDA to decline by just 3.5% in the first six months of the year compared to the same period a year earlier, which represents a lower rate of decline than we had expected in our original guidance. Finally, at NRS, merchant services and set fee revenue outperformed our expectations. As Shmuel mentioned, the broader market softening in CPM rates in certain segments of our advertising markets offset those gains. That Adjusted EBITDA remains on track with our original guidance to achieve our forecast range of 20%-25% growth for fiscal 2026. To sum up, overall, we are very pleased with our financial results so far this year and are continuing to build on our momentum. Now Shibu and I will do our best to answer your questions. Operator, back to you for Q&A.

Operator: The question and answer session will now begin. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we assemble the roster. Our first question is from Iñigo Alonso with Stoic Capital. Please proceed.

Iñigo Alonso, Analyst, Stoic Capital: Hello, Shmuel, Marcelo, and Bill. I would like to ask four questions. I’ll start with NRS. The first one, a couple of questions on NRS. Are we going to see the monthly report again? We haven’t seen the release for this year. In the past, you have mentioned how the opportunities for growth are ample, and I was wondering if you could provide some color on the execution level at the group in this quarter for those opportunities and maybe some color on why SG&A went up and advertising picked up a little bit from last quarter.

Shmuel Jonas, Chief Executive Officer, IDT Corporation: On the first question, why the NRS release didn’t go out, I don’t know. I’d have to check.

Marcelo Fischer, Chief Financial Officer, IDT Corporation: It comes out probably tomorrow or the day after.

Shmuel Jonas, Chief Executive Officer, IDT Corporation: As far as your second question on the pickup in SG&A, you know, again, I would say it’s probably a couple different things. There’s no one answer, unfortunately. One is maybe I should be watching them a little closer. Number two is that, you know, we are sort of beginning to sell a new product inside of NRS, and we’ve done some hiring sort of in advance of it coming out. That has probably led to some increase in SG&A. The third piece is, you know, I would say that probably a larger percentage of our sales came through resellers recently, and they, you know, have a slightly higher, you know, percentage goes back to them.

I think that those are probably the three main effects. Did I miss one of your questions?

Iñigo Alonso, Analyst, Stoic Capital: Yeah. The other one was on ad dynamics and if you can give some color on those opportunities that you have been working on.

Shmuel Jonas, Chief Executive Officer, IDT Corporation: I mean, again, you know, we continue to, you know, work every day to try to, you know, increase our advertising sales. You know, as you know, we’ve had, you know, a couple different challenges, you know, including, you know, a partner that we worked with for quite some time that’s no longer in business. I think that, you know, overall they’re doing, you know, their best to get through this period. I think that, you know, going forward, we’re gonna do a much better job of really connecting the data that we have with the ads that we’re trying to sell, and we think that that’s going to be, you know, a much bigger contributor to volume going forward.

Unfortunately, like, it wasn’t, you know, yet a big enough contributor, but, you know, we expect that to be, you know, what helps NRS ads turn the corner.

Iñigo Alonso, Analyst, Stoic Capital: Okay. On BOSS Money, obviously this was an important release because it was the first month of January including the results, and that is after the tax change. We have seen a revenue decrease quarter-over-quarter, which is logical because you have seasonal promotions that you run in the winter, and you’re probably trying to get customers, so part of it might be due to customer acquisition costs. I would appreciate color on, obviously, you know, the surveys that we have done in the markets so we see that immigrant communities are aware of this tax transition, and they are adapting quickly to minimize their cost in remittances. Can you provide a picture of how many new users are you getting compared to what it has been in the past and maybe explain that revenue decrease quarter-over-quarter?

Is it due to increased competition from retail players going digital, or is it purely due to customer acquisition costs?

Shmuel Jonas, Chief Executive Officer, IDT Corporation: You know, I’ll let Marcelo answer it a little bit more thoroughly, but I mean, one thing I’ll say is that you know, we had a weaker November and December than we had planned for. Frankly, we don’t know why. Just you know, it was just weaker than we expected. January picked up quite dramatically, and you know, it’s picked up since then as well. I’ll let Marcelo answer.

Marcelo Fischer, Chief Financial Officer, IDT Corporation: Yeah, I mean, yeah, Shmuel is right. I mean, since the remittance tax kicked in in January, we saw digital transactions increased significantly, and that impacted Q2 by only one month. Now as we go into Q3, we continue to see a very nice uptick in digital transactions during February, and now as we go into March. I mean, just now we ourselves are still trying to better determine, you know, how significant the remittance tax is going to be impacting the dynamics. You know, there is no question that we are seeing some of our retail customers migrating into our app. So some of the apples on our apple tree are moving to digital.

I think more than that is that I think we are picking up apples, the little apples from other players as well, and adding those apples into our digital offering. I think that’s driving digital transactions. For example, this past week was our third-best week ever in transactions for BOSS Money-

Iñigo Alonso, Analyst, Stoic Capital: Okay.

Marcelo Fischer, Chief Financial Officer, IDT Corporation: behind just the week of Christmas and the week of Mother’s Day, right, which typically are the strongest weeks, right? In general, March, you should have a nice uplift seasonally. We’ve seen that in previous years. It’s a bit early to tell. You know, we also are trying to, you know, get our hands around how strong this shift to digital is going to continue to be. It’s a bit too early to tell, but so far it has been good sailing since the tax kicked in.

Iñigo Alonso, Analyst, Stoic Capital: Really good.

Marcelo Fischer, Chief Financial Officer, IDT Corporation: Mm-hmm.

Iñigo Alonso, Analyst, Stoic Capital: Big-picture question, not related to this quarter performance. In 2021, you acquire a minority stake in MarketSpark. That company recently turned profitable. I was wondering, what’s the plan with MarketSpark? Do you have any call options to acquire the full business? Is it planning to go public in the future? How do you see that investment today?

Shmuel Jonas, Chief Executive Officer, IDT Corporation: I don’t think that I can really comment on that. I mean, I’m a board member, and I wouldn’t feel comfortable commenting on their business without their, you know, authorization to do so.

Marcelo Fischer, Chief Financial Officer, IDT Corporation: Right. We have a minority stake in that company.

Iñigo Alonso, Analyst, Stoic Capital: Okay. Last one. Last quarter, you mentioned how on the M&A front you were planning your next big move. Do you have any updates on the future in terms of M&A, and if those conversations at all are still progressing adequately?

Shmuel Jonas, Chief Executive Officer, IDT Corporation: Not right now.

Iñigo Alonso, Analyst, Stoic Capital: Okay. Thank you.

Shmuel Jonas, Chief Executive Officer, IDT Corporation: Thank you.

Marcelo Fischer, Chief Financial Officer, IDT Corporation: Again, if you have a question, please press star then one. Okay, we have a question coming from William Vaughn with Corient. Please proceed.

William Vaughn, Analyst, Corient: Hey, guys. Congrats on the quarter. My first question relates to NRS. Just wonder if you guys could give us some commentary just on the general single store operator convenience bodega market. Like, what trends are you guys seeing? I know in the past it’s been mentioned that there is a little bit of an effect in terms of store traffic from the immigration policies. Has that changed? Are you seeing any trends or any type of commentary you can give on the economics around those businesses and what the NRS side is seeing, that’ll be helpful.

Marcelo Fischer, Chief Financial Officer, IDT Corporation: Yeah, I mean, I think ultimately what drives the economics of the single retailer that we service is probably a lot less about immigration issue. Now, that could be a factor, maybe certain markets in certain locations. But by and large, I think it’s more, they’re much, much more a reflection of the larger economy, you know, on the side of the customer pocket, affordability. So I think that, you know, inflation and all, and other measures of customer demand are much more of a factor impacting how the retailers are doing than the immigration side.

So far over the past, you know, few retailer reports that we put out on a monthly basis, you know, we have seen that the retailers continue to grow the businesses that are now quite nice percentages. I think that overall when you look at our 35,000+ retailers, you know, I think that category remains quite strong.

William Vaughn, Analyst, Corient: Okay. Good color. Another question on BOSS Money. Nice growth in the quarter. It sounds like you mentioned that the digital transaction business might be accelerating, maybe in the second quarter. Just wondering if you could give some color on that. Also, like, what do the competitive dynamics look like in the business? There are some other digital-first players that have shown really good growth in their previous quarter in their filings as well. Just if you could comment on the competitive positioning, thoughts on investments in that business in terms of increased possible marketing to compete with those players. How do you guys think about that?

Shmuel Jonas, Chief Executive Officer, IDT Corporation: I mean, you know, again, as we, I guess, answered in the last question, you know, it’s definitely accelerating. I mean, in terms of competition, you know, we have some very strong, you know, competitors, you know, both from the traditional players as well as the, you know, only digital players. You know, I’m sure, you know, that they’re also benefiting from, you know, the change from, you know, a retail, you know, driven business to a digital-driven business. That being said, you know, I think that, you know, we really do have, you know, an excellent, you know, app and an excellent experience for our customers. You know, we received probably, you know, by at least some measurements, the highest ratings of any app, you know, in the US.

you know, we think that, you know, there’s a reason why our customers, you know, come to us and stay with us. you know, our pricing is, you know, extremely competitive. You know, the experience as I said, is extremely good. you know, if I were looking for a money transfer service myself, I would use BOSS Money. that being said, you know, we do have strong competitors, and it’s a competitive market. you know, we are, you know, spending, I would say probably also more acquiring customers than we have in the past, just because, you know, we have been, you know, doing a good job bringing on customers, so might as well spend money to get more of them. keeping them.

Marcelo Fischer, Chief Financial Officer, IDT Corporation: Yeah. I’ll just add now what I just mentioned in my own remarks. Something to bear in mind is that, as you know, revenues at retail are significantly higher than revenues that are derived digitally. I think this is true for us. It’s probably true for other players in the industry as well. The reason being is that now when we sell something at retail, we charge a much higher fee because usually half of that fee then goes back to the retailer, you know, either the cost of goods sold or something like that. In general, revenue per transaction is much higher at retail than in digital. But as for us, our digital net margins are significantly higher than retail.

To some extent, now you’re seeing that dichotomy that on one hand our revenues continue to grow because of digital but maybe not as fast as they used to. Some of it is because the retail revenues are coming down, which is about now almost two times as high as our digital revenues. At the same time, you see our EBITDA growing at a much faster clip because the margins at digital are so much higher.

William Vaughn, Analyst, Corient: Awesome. Great color. Last question. I was definitely pleased to see the buyback this quarter. Just in terms of capital allocation, the buyback is of $50 million or so, definitely a great first step. But if I’m thinking about the businesses, you got some really cash generative businesses here. The three high growth businesses, plus even the legacy business. The current capital allocation plan, it’s great, but it doesn’t actually put a huge dent in the cash position. How are you guys think about going forward? Is it do buybacks kind of keep the cash where it is right now, and maybe wait for a bigger opportunity for M&A transaction?

Do you expect buybacks to eventually sort of start eating away at the large cash position that you have?

Shmuel Jonas, Chief Executive Officer, IDT Corporation: I would probably say the first rather than the second. I don’t expect, you know, cash to, you know, materially decline from where it is. I think we, you know, prefer having more cash, you know, available for, you know, for lots of different purposes, you know, including potential acquisitions. You know, that being said, you know, as you’re pointing out, the businesses are very cash generative and, you know, we intend to, you know, continue to purchase back shares, you know, depending on the price, more or less opportunistically. We increased the dividend this quarter, as you know. We try to be as responsible as we can.

William Vaughn, Analyst, Corient: Awesome, guys. Thanks for answering my questions. Keep up the good work.

Shmuel Jonas, Chief Executive Officer, IDT Corporation: Thank you very much.

Marcelo Fischer, Chief Financial Officer, IDT Corporation: Thank you.

Operator: Again, if you have a question, please press star then one. 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.

Shmuel Jonas, Chief Executive Officer, IDT Corporation: Thank you.