IDT CORPORATION - COMMENTS ON THE Q1 2025 RESULTS

Hi everyone! This week, I’m sharing two related articles. The first one is the article you’re reading now: comments on IDT’s Q1 2025 results. The second, which you’ll receive separately, delves into an interesting corporate structure that presents good investment opportunities: companies with two or more businesses, where the larger, stagnant or declining one hides a smaller, fast-growing business that may be overlooked by the market. Precisely, IDT is an example of this type of structure. I hope you enjoy both articles!

(You also have these both posts in this substack homepage)

Important disclaimer: this is a personal opinion. I am not a professional advisor or analyst and I may be wrong in both the data and my interpretation or opinion. Do your own due diligence. None of this is investment advice of any kind. I currently own shares of IDT Corporation.

This is not a company analysis, but rather quick comments on the Q1 2025 results. Therefore, there are many things about IDT that are not commented on here. If you detect any mistake, please let me know. (And excuse me for the language mistakes, spanish guy writing in english here!) Let's go.

In the near future, I hope to write an in-depth analysis and investment case for IDT. I would have liked to bring it to you this week, but writing something online with at least minimal quality —and a personal touch —takes more time than it seems, and my available time is currently limited. However, since the company recently released its first-quarter results for 2025, and since it is one of my favorite companies, I would like to make a few comments on them.

IDT is a holding company with six main businesses. Three of them are legacy businesses that are stagnating or declining (although one might still have some growth ahead), while the other three are high-growth businesses with large addressable markets.

We can sum up the results of IDT in one line: very solid results, an extremely solid balance sheet, and a number of investments to ensure future growth for the expanding businesses which have (more or less) recently reached break-even points and are now improving their profitability thanks to operating leverage. In my opinion, the company is in very good shape and has strong prospects for both the near and distant future, though, of course, I could be completely wrong.

Let’s briefly discuss the different parts and then touch on the balance sheet and capital allocation.

National Retail Solutions (NRS)

NRS offers Points of Sale to small stores in the US, which can include payment processing, various software solutions to better manage the store, and advertising and data analytics. The company generates recurring revenue with these three services, and non-recurring revenue when selling the Points of Sale. In this quarter, NRS grew total revenues by 26.5% and recurring revenues by 29% (which are the most important because, obviously, they are recurring). It also grew its ARPU year-over-year and quarter-over-quarter, and improved its profitability margins, bringing the adjusted EBITDA margin to about 25%.

NRS’s performance has been outstanding both in revenues and profits over the past few years, though its results are somewhat less spectacular due to the different evolution of its moving parts. A few years ago, the segment was more heavily dependent on advertising revenue, which, by nature, is cyclical and relies on the advertising budgets of other companies and economic prospects (when economic fears rise, businesses spend less on ads). Meanwhile, the other recurring revenue sources (payment processing solutions and various software solutions included in the point-of-sale systems) were far less developed and widespread than they are today. In recent years, economic prospects have been unclear, and the rise in interest rates has raised concerns about an economic slowdown, making financing more difficult for companies and leading them to spend less on advertising. This decline in advertising revenue, combined with the fact that this segment accounted for the largest share of IDT’s revenue two or three years ago, made the results in the following quarters appear more stagnant than they actually were. However, the other drivers of NRS, which generate higher-quality revenue (due to their non-cyclicality and more recurring nature), have continued to grow and now account for the largest part of NRS’s business.

Advertising revenue is no longer actually depressed, but it is also not at its peak, so it remains a potential option to boost revenues temporarily when economic conditions prompt companies to increase their advertising budgets. However, the company no longer relies on advertising revenue, and it is now simply a good option available when the situation arises. The other two parts are growing perfectly well.

Another quick comment on NRS: the sale of terminals (the Point of Sale machines) has grown, but at a slightly slower pace this quarter. However, management says this is just due to seasonality across different quarters of the year, and it should return to its normal pace, without being a structural slowdown. To reassure future and long-term growth, NRS is targeting new verticals. NRS’s traditional market includes small stores like bodegas, tobacco shops, convenience stores, etc. Now, NRS is also expanding into small restaurants, hotels, and gas stations, thereby enhancing its total addressable market (TAM). In Shmuel Jonas’ (the CEO) words, they are “heavily investing to develop new products and services to broaden our addressable markets.”

In general, there are very good prospects for NRS. Some time ago, a strong part of the IDT investment thesis was the potential spin-off of NRS (IDT has a long history of incubating and growing businesses and spinning them off to unlock value). However, Jonas does not seem to have a spin-off in mind right now and sees it as growing within IDT, at least for the moment. In fact, in one of the last conference calls, he talked about being focused on building NRS as a multi-billion-dollar company (currently, the whole IDT, with all its parts, is capitalized at $1.3 billion, so that’s a big promise!). Ok, you might be thinking: “Oh, a CEO overpromising, what a surprise!” Ok, let me tell you. Shmuel Jonas is not the type of CEO who tries to sell you a story during the conference calls. In fact, I strongly recommend you listen to the latest IDT conference calls. Jonas's anti-promotional and anti-commercial tone is almost funny; in fact, when you listen to him, you find yourself thinking, 'Do I really want to invest here?' because it almost seems like he doesn't even want to do the calls and would rather just go back to work. However, then you look at IDT's impressive results quarter after quarter, and you think, 'Damn it, this is the CEO I want for my company!' He's not the most eloquent guy in the world or the best salesperson for investors, but he knows how to run the company!

To finish, some numbers: about $30 million in revenue this quarter for NRS, and $7.6 million in adjusted EBITDA, with margins improving every quarter. I expect 2025 revenues to be around $135 million, with EBITDA margins between 25% and 30%, which would result in EBITDA of about $35 million.

Fintech segment

In this segment, IDT has several initiatives, but the most important one, which currently accounts for almost all of the revenues, is BOSS Money, its money remittance business. BOSS Money has been performing spectacularly recently. It has grown revenues by 45% year over year, although management is now giving more priority to improving margins than accelerating revenue growth. Adjusted EBITDA went from negative $0.7 million to positive $4 million year over year, and quarter over quarter, it rose from $1.5 million to $4 million between Q4 2024 to Q1 2025. The fintech segment generated $37.1 million in revenues this quarter, with BOSS Money accounting for $33.7 million of this total.

You can tell the company is enthusiastic about BOSS Money. In fact, in the last quarter, this subsidiary received a lot of investment in working capital, specifically in an item called “disbursement prefunding” —money remittance is an industry with high working capital requirements, specifically funds that must be available to be transferred to recipients in other countries quickly and without delays. This suggests that growth in future quarters is likely to remain strong, all while management focuses on improving margins.

The company considers that these strong working capital requirements, which can be needed rapidly, are an obstacle for small money remittance businesses to succeed. IDT’s super-strong cash position is seen as a competitive advantage in this area.

Net2Phone

Compared to NRS and BOSS Money, this third driver of IDT’s growth is a bit less impressive, but it’s still doing well. In fact, it has grown 13% year over year, despite the negative impact from Forex (CFO Marcelo Fischer mentioned in the call that it would have been 16% growth without the FX impact), so it’s still solid growth. "We feel very positive about the long-term success and growth," said Fischer about Net2Phone. This segment, which offers cloud communications, generated $21.6 million this quarter and $2.5 million in EBITDA. Sequentially, there was no EBITDA growth compared to Q4 2024, and only a slight revenue increase ($20.5 million in last year’s Q4 vs. $21 million in this Q1). Within the segment, management points to some positive dynamics, such as the higher ARPU solution within Net2Phone—Communication Center as a Service—which is gaining market share against Unified Communication as a Service, the other offering.

The segment is doing fine, and we should expect revenue and profit growth to continue, although its performance is not as strong as that of NRS and BOSS Money.

Traditional Communications segment

Here we have the other three businesses. They still account for most of IDT's revenue, although losing share to the other three segments. They provide a solid stream of cash flow to IDT every quarter, and although declining, cost control has helped maintain EBITDA, which has only declined 1% year over year, from $18.1 million to $17.8 million.

In fact, we need to make a distinction here, because one of these three more legacy businesses, IDG Digital Payments, is kind of bouncing back. Despite a slight decline in revenues compared to last quarter (from $106.1 million to $105.1 million), it has grown 5% year over year, from $100 million to $105.1 million. Not bad at all for being part of the group that was supposed to be declining!

The other two businesses are focused on prepaid minute communications. One of them, IDT Global, has remained almost flat YoY (actually growing 1%, thanks to "a traffic mix shift to higher-margin routes and operational efficiencies" as management mentioned in the quarterly results report). The other business, Boss Revolution, has experienced a significant decline (as expected), with a 20% drop YoY, from $71.2 million to $56.8 million.

In general, it's a really good performance for a mix of legacy businesses that were supposed to be in decline due to industry-wide challenges. They continue to provide IDT with strong cash flow, which in previous years was necessary to finance the cash-burning phase of the other three high-growth businesses, and now that all of them are profitable, it’s free cash flow that the company can use for whatever it wants.

Not bad, if you ask me. Not bad at all.

Financial Situation and Capital Allocation

Ok, we’re getting to the end. The financial situation of the company, as previously mentioned, is extremely healthy, with about $180 million in cash and no debt, for a market cap of $1.3 billion. The cash position has declined slightly due to strong investments in working capital for BOSS Money. However, it remains extremely healthy, with a growing stream of cash flow each quarter. A rock-solid balance sheet for a company that focuses on incubating new businesses, with three young stars and a long growth trajectory, along with a big TAM ahead.

Regarding capital allocation: investments in the businesses have been made, though not excessive, since they are not capital-intensive, except for the working-capital needs that occasionally spike in BOSS Money. So, there’s a lot of free cash flow, which the company has been accumulating in its cash position. IDT returns money to shareholders through share repurchases and a recently initiated dividend. However, these two items are relatively small when compared to the cash position and free cash flow (around $3 or $4 million combined in the quarter, which is very low in relation to the company's potential).

Maybe the only thing that bothers me about IDT is seeing such low repurchases, given the strong cash position and the visibility of future free cash flow coming in like clockwork. However, Shmuel Jonas has a long track record of managing the business extremely well, and if he’s holding onto that pile of cash, it must be for a reason. Perhaps is it a hedge against a challenging economic future? Maybe some big M&A is coming? Or new businesses being incubated? Now that they have this large cash reserve as a "bulletproof" cushion, maybe will they increase returns to shareholders? I don’t know. As a shareholder, I do wish there were more buybacks in the future, that’s true. But let’s see what Shmuel Jonas, who himself is a big shareholder, decides to do with it.

A few last words: Is the company undervalued?

Since September 2023, the stock price has risen from the low twenties to the low fifties (currently $52, as of December 7th). It's a big jump, although the price was previously depressed by a delicate and potentially problematic legal issue that was resolved favorably for the company. Despite the rise in price, I believe the company is, if not extremely undervalued, still significantly undervalued. Of course, this is just my opinion, and it will depend on how you value the sum of the parts. But in my view, NRS, the legacy businesses and cash on hand, account for the entire market capitalization, without the need to be overly optimistic. BOSS Money — which is one the most important parts of IDT, along with NRS — and Net2Phone could be essentially free at these prices. As I said, it's just my opinion, and in holding structures, it's often said that price doesn't adjust value as precisely as when you have the businesses separately (hence the insistence by some on different spin-offs —personally, I like holding structures and I’m not eager for spin-offs at all; the businesses are generating super healthy cash flows for the company, and that’s what matters to me). As always, make up your own opinion.

By the way, do you know one of the most interesting things about IDT? Since the legal issue (which could have been a potential danger of unknown magnitude to the company) was resolved last year, anyone who looked a bit more closely at the company could clearly see the strong results IDT was going to achieve and is likely to continue achieving in the following quarters. These kinds of companies, where you find a mix of large stagnant segments and smaller, growing ones — all combined to create somewhat convoluted consolidated financials — are some of my favorite investment opportunities. It’s a bit too lengthy to cover here, so I’ve written a separate article to address the topic, which I think is really interesting and might be worth the read. Take a look here if you’re interested. It is in the S

ubstack homepage, and in your email inbox if you are a subscriber.

Disclosure: I own shares of IDT, and I would like to maintain my position for a long time, or increase it. However, I may change my mind at any time. As always, you should do your own diligence and you should make your own decisions.

If you've gotten this far, thank you so much for reading me! I'd really appreciate any feedback, comments or repost!