Executive Summary / Key Takeaways

• IDT Corporation is successfully executing a strategy to transform from a legacy telecom provider into a diversified technology company, driven by growth in its National Retail Solutions (NRS), Fintech (BOSS Money), and net2phone segments.
• Recent financial results demonstrate significant operating leverage, with record gross profit margins and substantial year-over-year increases in income from operations and Adjusted EBITDA, fueled by scaling growth businesses and resilient contributions from Traditional Communications.
• Technological innovation, including the NRS POS platform, BOSS Money's digital remittance capabilities, and net2phone's AI-powered services, is a key differentiator, enhancing efficiency, expanding addressable markets, and contributing to margin expansion.
• Management has provided strong guidance for fiscal year 2025, projecting Adjusted EBITDA of at least $126 million, representing approximately 40% growth, underpinned by expected continued growth in key segments and moderated decline in Traditional Communications EBITDA.
• The company maintains a strong balance sheet and disciplined capital allocation approach, balancing investment in growth initiatives and opportunistic acquisitions with returning value to shareholders through dividends and share repurchases funded by excess cash.

A Diversified Technology Play Emerges from Telecom Roots

IDT Corporation, founded in 1978 with roots in international telecommunications, has strategically transformed itself into a diversified technology company. While its Traditional Communications segment, encompassing international long-distance calling (BOSS Revolution), digital payments (IDT Digital Payments), and wholesale carrier services (IDT Global), continues to generate resilient cash flow, the company's future is increasingly defined by its high-growth segments: National Retail Solutions (NRS), Fintech (primarily BOSS Money), and net2phone. This evolution reflects a deliberate response to changing market dynamics, particularly the secular decline in traditional voice services, by leveraging existing assets and expertise to build technology-driven, synergistic businesses.

The competitive landscape for IDT is varied across its segments. In Fintech, BOSS Money competes with established players like Western Union (WU) and MoneyGram (MGI), as well as newer digital-first entrants. IDT's NRS platform operates in the retail POS and merchant services space, competing with various technology providers serving independent retailers. The net2phone segment faces competition in the crowded Unified Communications as a Service (UCaaS) market from larger players like RingCentral (RNG) and other cloud communication providers, while its Traditional Communications segment competes with other carriers and over-the-top (OTT) service providers, including indirectly with companies like Twilio (TWLO) in certain areas. IDT's strategy emphasizes differentiation through integrated offerings, targeted market focus, and operational efficiency rather than competing solely on scale or price across all fronts.

A core element of IDT's strategy and competitive positioning lies in its technological differentiation. The NRS platform provides independent retailers with a comprehensive suite of tools, from store management software to integrated electronic payment processing (NRS Pay). This technology offers tangible benefits by enabling retailers to operate more efficiently and compete with larger chains. The platform also serves as a digital out-of-home advertising network, providing marketers with access to a specific consumer demographic.

In the Fintech segment, the BOSS Money digital platform facilitates international money remittances with a focus on user experience and efficiency. The company is actively developing innovations like stable coin transfers and in-country wallets linked to payment cards, aiming to reduce cross-border friction and increase profitability. These efforts are intended to enhance the platform's capabilities and maintain competitiveness against rivals.

Net2phone's cloud communications platform is being enhanced with significant AI capabilities. The company recently launched an Advanced AI Agent designed to handle sales, support, and administrative tasks across various channels, aiming for enhanced efficiency and customer experience. Another AI-powered service, internally dubbed "Coach," is in development. These initiatives target improved ARPU and operational leverage. While specific quantitative performance metrics for these new AI features are still emerging, the strategic intent is to leverage AI to provide more sophisticated, tailored solutions and drive future revenue growth and margin expansion, positioning net2phone to compete more effectively in the evolving UCaaS market. For investors, this technological focus across segments is crucial as it underpins the company's ability to create competitive moats, improve operational efficiency, and drive future profitability and market share gains.

Performance Reflecting Strategic Execution

IDT's recent financial performance underscores the success of its diversification and growth strategy. In the three months ended April 30, 2025 (Q3 FY2025), consolidated revenues inched up 0.8% year-over-year to $301.9 million, but this top-line stability masked significant underlying improvements in profitability and segment mix. Gross profit surged 15.4% to a record $111.9 million, pushing the gross profit margin to a record 37.1%. This margin expansion reflects increased contributions and improved economics across the business segments.

Income from operations saw a dramatic increase, jumping 132.6% year-over-year to $26.6 million in Q3 FY2025. Adjusted EBITDA also saw robust growth, surging 57% to $32.2 million. These bottom-line improvements highlight the expanding operational leverage of the growth businesses and the continued resilient cash generation from the Traditional Communications segment, even as its revenue declines. For the nine months ended April 30, 2025, consolidated revenues were $914.9 million, up from $896.9 million in the prior year period, with income from operations reaching $78.5 million compared to $44.6 million.

Segment-level performance provides further insight. NRS revenues grew 21.0% year-over-year in Q3 FY2025 to $31.1 million, driven by a 22.5% increase in recurring revenue ($29.4 million). Active POS terminals grew 18.0% to 35.6 thousand, and payment processing accounts increased 31.0% to 25.5 thousand. Income from operations for NRS rose 29.2% to $6.2 million, demonstrating strong operating leverage despite increased selling, general, and administrative expenses related to sales commissions and bad debt provision for an advertising partner.

The Fintech segment saw revenues increase 22.5% year-over-year in Q3 FY2025 to $38.6 million, primarily fueled by BOSS Money. BOSS Money transactions increased 27% to 6 million, with digital transactions constituting over 80% and digital send volume surging 40%. Fintech's income from operations was $4.3 million, a significant improvement from $0.6 million in the prior year quarter, with adjusted EBITDA exceeding $5 million. This performance reflects increased transaction volume and efforts to improve gross profit per transaction, particularly in the retail channel.

Net2phone revenues grew 6.3% year-over-year in Q3 FY2025 to $22.0 million, with subscription revenue increasing 7.0% to $21.5 million (11% on a constant currency basis, highlighting FX headwinds). Seats served grew 8.0% to 415 thousand. Net2phone's income from operations increased significantly to $1.4 million from $0.5 million, and adjusted EBITDA rose 50.2% to $3.2 million, with the adjusted EBITDA margin reaching 15%. This profitability improvement was driven by revenue growth and disciplined cost management, particularly in SG&A.

The Traditional Communications segment's revenues declined 5.2% year-over-year in Q3 FY2025 to $210.2 million, primarily due to an 18.2% decrease in BOSS Revolution calling revenue ($51.7 million) and a 26.0% decrease in minutes of use. However, IDT Digital Payments revenue increased 1.0% to $102.6 million, and IDT Global revenues were stable at $50.0 million. Despite the revenue decline, the segment's gross profit increased 5.3% to $43.4 million, and income from operations jumped 38.4% to $17.3 million, reflecting successful cost reduction initiatives and a favorable traffic mix in IDT Global.

Financial Health and Capital Allocation Discipline

IDT maintains a solid financial position, providing flexibility for investment and shareholder returns. As of April 30, 2025, the company held $223.8 million in cash, cash equivalents, debt securities, and current equity investments. Working capital stood at a healthy $211.1 million. The company's cash balance can fluctuate significantly week-to-week due to the working capital cycle of the BOSS Money business, particularly the need to prefund disbursement partners ahead of peak transaction periods like weekends.

The company has minimal debt, with no amounts outstanding under its $25.0 million revolving credit facility as of April 30, 2025, and remains in compliance with all covenants. This low leverage position provides a strong foundation.

IDT is committed to returning value to shareholders. The company increased its quarterly cash dividend to $0.06 per share in March 2025 and expects to continue increasing the dividend annually, supported by robust cash generation. It also maintains an opportunistic stock repurchase program, with 4.2 million shares remaining available for repurchase under the authorization as of April 30, 2025. Share repurchases are funded by excess cash, not borrowed funds, reflecting a disciplined approach to capital allocation. The company also considers strategic investments and acquisitions to accelerate growth or diversify, evaluating opportunities based on their potential to create value.

Outlook and Growth Trajectory

Management's outlook for fiscal year 2025 is optimistic, projecting significant bottom-line growth. The company is on track to achieve Adjusted EBITDA of at least $126 million for the full fiscal year, representing approximately 40% growth compared to the $90 million achieved in fiscal year 2024. This guidance is based on the strong performance in the first half of the year and the expectation that the growth businesses will continue to scale and expand their operating leverage.

Segment-specific expectations underpin this consolidated outlook. NRS is budgeted to continue growing its POS network by approximately 500 net terminals per month, targeting 6,000 net additions per year. Management anticipates NRS EBITDA will grow another 30% in fiscal year 2025 on top of the $25 million delivered in fiscal year 2024, driven by network expansion, increased NRS Pay penetration, and adoption of new features and premium plans.

The Fintech segment, particularly BOSS Money, is expected to continue its strong growth trajectory. Management projects BOSS Money's stand-alone Adjusted EBITDA to exceed $10 million in fiscal year 2025, more than double the prior year's contribution. This growth is expected to be driven by continued transaction volume increases, especially in the digital channel, and a focus on optimizing gross profit per transaction.

Net2phone is expected to continue its steady expansion. While specific EBITDA targets were not provided, management's focus on disciplined cost management and the potential for new AI-powered services to increase ARPU suggest continued margin expansion and bottom-line improvement for this segment.

The Traditional Communications segment is expected to continue its revenue decline due to market trends. However, management anticipates the rate of EBITDA decline in fiscal year 2025 will be significantly less than in fiscal year 2024 (potentially $5 million-$6 million decline vs. $11 million decline), contributing an estimated $16 million in EBITDA. This moderation is expected due to the full-year impact of cost reduction initiatives and growth in the IDT Digital Payments business. Overall, the combined strength of the growing segments is expected to more than offset the decline in the traditional business, leading to a slight increase in consolidated revenue and substantial growth in consolidated EBITDA.

Risks and Challenges

While the outlook is positive, IDT faces several risks and challenges. Macroeconomic conditions, including inflation, slower growth, and potential recession, could adversely impact consumer spending and demand for the company's services, particularly in its consumer-facing segments like BOSS Money and BOSS Revolution. Changes in interest rates could affect investment income and borrowing costs, although the company currently has minimal debt.

Regulatory and political factors also pose risks. Changes in immigration laws and enforcement could negatively affect businesses that rely heavily on immigrant communities. The potential imposition of new taxes, such as a proposed excise tax on remittance transfers, could impact the Fintech segment's profitability. The company is also subject to ongoing legal proceedings, including an appeal in the class action related to its former subsidiary, Straight Path Communications Inc., which could result in unforeseen liabilities or costs.

Compliance with evolving regulations, such as those related to sales tax collection following the Wayfair decision and new requirements for reporting greenhouse gas emissions, could increase operating costs. Foreign currency fluctuations can impact the translation of international revenues and expenses into U.S. dollars, creating volatility, as seen in net2phone's results from Latin America. Competition across all segments remains intense, requiring continuous investment in technology and customer acquisition to maintain market share and profitability. The company's ability to successfully execute its strategic initiatives, integrate new technologies, and navigate these external factors will be critical to realizing its growth potential.

Conclusion

IDT Corporation is executing a compelling transformation story, successfully pivoting from its legacy telecom foundation to build and scale high-growth technology-driven businesses in NRS, Fintech, and net2phone. The company's recent financial performance, marked by record gross profit margins and significant bottom-line expansion, demonstrates the increasing operational leverage of these newer segments and the effectiveness of managing the Traditional Communications business for resilient cash flow. Technological innovation, from the NRS POS platform to net2phone's AI agents and BOSS Money's digital advancements, is central to its competitive strategy and future growth.

With a strong balance sheet, disciplined capital allocation, and clear guidance for substantial Adjusted EBITDA growth in fiscal year 2025, IDT appears well-positioned to continue its trajectory. While macroeconomic headwinds, regulatory changes, and intense competition present ongoing challenges, the company's strategic focus on leveraging technology, expanding its growth businesses, and optimizing profitability across its portfolio provides a clear path forward. Investors should monitor the execution of new product launches, the adoption rate of AI-powered services, and the company's ability to sustain growth and margin expansion in its key segments while effectively managing the decline in traditional revenues.