All right. Welcome, everyone, to the SOTI March Small Cap Conference. Thanks for joining us here for the IDT Corporation presentation. With us from the company, we have Marcelo Fischer, the company CFO, and Bill Ulrey, who heads up their IR program. They're going to run through a presentation, and then we'll have some time for Q&A at the end. If you do have any questions, please enter them through the Q&A function in Zoom, and we'll get to as many of those as possible. With that, I'm going to now turn it over to Marcelo to run through the presentation.
Thank you, Greg, and good morning, everyone. I'm joined today by Bill Ulrey with IDT's head of investor relations. We have about a half hour for this meeting. Bill will take the first 20 minutes or so to walk you through our investor deck, and then we will be happy to take your questions. Now Bill will get started with the presentation.
Thank you, Marcelo. Please note that we'll be discussing our financial and operational results for IDT's second quarter of fiscal year 2025, the three months ended January 31st. Please read our forward-looking statement at your leisure. Let's begin with some basics about IDT. We're an innovative SaaS platform and fintech services company. Although we are firmly in the small cap orbit with a market cap of approximately $1.2 billion, we are not your typical small cap company. What makes IDT unusual? For one thing, we've been in this business for 35 years, a lot longer than most. Also, we're growing both our top and bottom lines. We support our businesses with prudent cash management. You can see this reflected in our balance sheet, where we have over $170 million in cash and no debt.
Unlike many small cap companies, higher interest rates are a positive for our balance sheet, not a negative. IDT operates six interrelated businesses. In today's presentation, we will focus on the three high-margin, high-growth businesses listed on the left-hand side of this slide: NRS, Boss Money, and net2phone. Collectively, they are the primary drivers of IDT's top and bottom line growth and value creation. The three businesses on the right-hand side of this slide are our three largest businesses in terms of revenue. All three sit within our traditional communication segment. All six of these businesses were built around one or more of our core strategic assets.
These assets include the Boss consumer brand, through which we serve approximately 5 million unique customers each month, our extensive nationwide distribution network, including 25,000-plus independent retailers who sell our products and services, our highly scalable technology platform, and our global telephony and VoIP infrastructure networks. IDT developed each of these assets over the decades, and we continue to invest to keep them strong and vibrant. Now let's dig into the first of our high-growth, high-margin businesses, NRS. National Retail Solutions, NRS, operates the largest point-of-sale platform for independent retailers in the country. Our primary market includes owner-operated convenience stores and bodegas, and also liquor stores and tobacco shops. These small retailers primarily serve immigrant and multicultural communities in urban areas across America. We founded this business about eight years ago after having worked with retailers that sold IDT's Boss Revolution calling service for many years prior to that.
Through these relationships, it became apparent to us that these mom-and-pop stores needed better technology to compete against the large retail chains. We launched NRS to level the retail playing field. Our proprietary POS solution now provides these retailers with essential tools and services to help them manage their businesses more easily and profitably. As I mentioned, the primary addressable market for the NRS platform is independent C-stores and bodegas, liquor stores, and tobacco shops in the US. Good data on this market is hard to come by, but we believe there are at least 200,000 such stores in the US. As of January 31, we operated 34,800 active terminals in approximately 30,100 stores, meaning that approximately 86% of our target market remains available to us. We've been generally adding between 1,100-1,700 new terminals, net of churn, per quarter.
The bottom line is that we have an exceptionally long runway in our current market with limited competition. This graphic provides some perspective on the scale of the NRS retail network compared to the largest retail brands in America as a function of store counts. With over 30,000 retail locations, the NRS network is nearly 50% larger than the largest retail chain, Dollar General, which has about 21,000 stores. NRS is now deploying new POS formats, a tablet-based software-only version, and a self-ordering kiosk that will gradually help it deepen its penetration of its current core TAM and add new verticals, including quick-serve restaurants, cafes, and beauty salons. NRS's recurring revenues exclude the one-time sale of the POS hardware. Recurring revenues are generated primarily by three offerings.
First, sales of our payment processing service offered under the NRS Pay brand that enables retailers to accept credit and debit cards. Second, advertising and data revenue, predominantly sales of advertising displayed to consumers on the POS's customer-facing digital screen. Third, SaaS fee revenues, our monthly recurring fees for use of the software that drives the POS's functionalities. NRS's top line has been growing fast, increasing 32% year over year in the second quarter. The primary driver of the increase has been the expansion of our POS network to new retailers. In addition, we have been working to increase the monthly average recurring revenue per terminal. Recurring revenue per terminal in the second quarter increased to $310 per month from $285 in the year-ago quarter. That's up 9%. Now let's look at each of the three revenue streams in a little bit greater detail.
Over 90% of the revenue in our merchant services category is contributed by NRS Pay, which is now utilized by nearly 24,000 retailers. For Q2, our most recent quarter, the number of NRS Pay accounts increased by 32% year over year. Over the past few years, we've introduced several premium NRS Pay plans to drive increases in per-terminal revenue. The increases in the number of NRS Pay accounts and rising revenue per terminal drove a 45% year-over-year increase in merchant services revenue during Q2. NRS sells its large and growing ad inventory through its direct sales efforts and through programmatic platforms. This vertical also includes revenues from sales of our POS transaction data to consumer marketers. Advertising and data revenue was $10 million in Q2 and totaled $32.5 million over the trailing 12 months. Now let's look at SaaS fee revenue.
NRS retailers pay a monthly recurring charge for the software services that each active POS terminal utilizes. The MRC ranges between $20 and $75 a month. We've successfully increased the average MRC in recent years by migrating retailers to premium SaaS plans. The increase in the average MRC and the growth of our POS network drove a 30% year-over-year increase in SaaS fee revenue in Q2. We expect that these drivers will continue to deliver strong SaaS revenue growth. NRS's economics are extremely attractive. The only significant COGS for the terminals themselves. Moreover, approximately half of NRS's SG&A is fixed or semi-fixed. The economics of the business will continue to improve as we scale. In Q2 of fiscal 2025, NRS generated $10.1 million in adjusted EBITDA on $31.6 million in total revenue for an adjusted EBITDA margin of 31%.
Thinking about the performance of NRS in terms of the rule of 40, we achieved a 55% score in Q2, which suggests that we're doing a pretty good job of balancing growth and profitability. To wrap up, NRS is just a fantastic business, both operationally and financially, with an extended runway ahead. Now let me introduce you to another fantastic IDT business, Boss Money. Boss Money is our international money remittance business. It generates over 90% of the revenues in our fintech segment, which also includes much smaller, earlier-stage initiatives. When we launched Boss Money a decade ago, we leveraged our large retail customer base, the Boss brand, and our retail distribution network to build this business from the ground up. Today, Boss Money customers here in the United States send their cash to friends and family in nearly 50 countries.
Boss Money goes to market through two channels, digital and retail. A significant majority of transactions originate through our digital channel by customers using our highly regarded Boss Money and Boss Calling apps. Our retail channel, where the customer visits a Boss Money retailer and can pay with cash, brings large numbers of new, often unbanked customers into this Boss ecosystem. Boss Money is growing robustly. Transaction volumes increased 36% in Q2, led by a nearly 40% year-over-year increase in digital transactions. Although money remittance is an extremely competitive industry, we've been able to achieve and sustain one of the highest growth rates in the industry, primarily by leveraging the synergies for customer acquisition and retention provided by cross-marketing Boss Money to our much larger Boss Calling and mobile top-up customer bases. This Boss ecosystem is a unique asset that significantly lowers our acquisition costs and increases customer lifetime values.
Looking ahead, we are pursuing a variety of initiatives to continue our momentum. Driven by the expansion in transaction volumes, in the first quarter, Boss Money revenue increased by 34% year-over-year to reach an annualized revenue run rate of $134 million. The revenue growth rate of our digital channel surpassed 38%, while revenue generated from transactions initiated at our retailers increased 24%. As Boss Money scales, our unit cost structure continues to improve as we leverage our larger transaction volumes to cut better deals with payout partners, while also optimizing our operating model through automation, including leveraging AI. Boss Money turned adjusted EBITDA positive last year, and in the second quarter of this fiscal year, the fintech segment, which also includes investments in our early-stage fintech business initiatives, generated adjusted EBITDA of $3.9 million for an adjusted EBITDA margin of 10.5%.
Thinking ahead about profitability over the longer term, many of the public players in the money transfer space generate 15%-25% adjusted EBITDA margins. We're working to achieve comparable levels of profitability as we continue to scale the business over the next few years. Now let's turn to the last of our high-margin growth businesses, net2phone. net2phone provides cloud-based communication services to businesses. Like NRS and Boss Money, we built net2phone around several of IDT's core assets. In this case, we leveraged IDT's extensive telephony infrastructure and VoIP expertise as one of the earliest providers of voice over IP calling. Under the Unite brand name, net2phone's unified communications as a service offering is priced in differentiated tiers, starting at $19.95 per user per month here in the US. net2phone's contact center as a service offering starts at $59.99 per seat per month in the US.
Both services are also offered in our South American markets, which comprise approximately half of our total seats served. net2phone's strong growth and cash generation are a function of several strategic differentiators that, in their totality, insulate it somewhat from the fierce competitive pressures in the industry. These differentiators include our focus on middle market enterprises rather than the largest multinational accounts, a channel-centric approach that makes it easy for technology partners to price provision service both net2phone's UCaaS and CCaaS offerings. Finally, net2phone is uniquely focused on the North and South American markets. Latin America remains an underserved market, and net2phone has prospered there with truly localized offerings that are difficult for the largest players to replicate. At the close of Q2 of fiscal 2025, net2phone served 410,000 UCaaS plus CCaaS seats across North and South America.
Seats served increased 9% year-over-year, driving a 9% increase in subscription revenue. On a constant currency basis, revenue increased 14%, reflecting the increase in seats served and also the increase in the number of higher RPU CCaaS seats. net2phone's second quarter of fiscal 2025 adjusted EBITDA jumped 55% to $2.9 million from $1.8 million a year earlier, while the adjusted EBITDA margin increased to 13% from 9%. net2phone's improving bottom line performance is driven by the growth of its higher RPU CCaaS offering, favorable operating leverage, our efforts to reduce churn, and our progress in reducing per seat customer acquisition costs. We expect to continue to drive RPU and margin expansion in the coming years by migrating customers to premium plans and offerings with AI-powered features. Most notably, net2phone recently launched its AI Agent, a scalable virtual assistant, providing exceptional customer experiences across sales, support, and administrative tasks.
The internal reviews of net2phone's AI Agent and early customer feedback have been exceptionally positive, and we are excited about the potential both to increase RPU from our current customer base and to accelerate net customer acquisition margins. Now let's take a look at our traditional communication segment. IDT Digital Payments, Boss Revolution Calling, and our IDT Global carrier services, along with smaller offerings, comprise our traditional communication segment. In aggregate, this segment generated $879 million in sales, equal to 72% of IDT's consolidated revenue over the trailing 12 months. Revenue from the largest of these businesses, IDT Digital Payments, predominantly comprised sales of Mobile Top-Up, a service enabling customers to transfer airtime and bundles of airtime messaging and data to international and domestic mobile accounts. Revenue from this business has been relatively stable over the past year, while its contribution to bottom line profitability has increased significantly.
Our Boss Revolution and IDT Global carrier services businesses are legacy businesses in the paid minute international long-distance calling industry. As you can see, we've been able to maintain or grow traditional communications adjusted EBITDA significantly over the past year, even as revenues have decreased. In the second quarter, traditional communications adjusted EBITDA increased by $3.2 million year-over-year, or 19%, even as revenue decreased by $10.5 million. Now let's wrap up by taking a quick look at our recent consolidated results. Although IDT's top line had been decreasing for years because of the gradual contraction in Boss Revolution Calling and IDT Global carrier sales, beginning in the second half of fiscal 2024, again in the first quarter of fiscal 2025, the accelerating expansion of our growth businesses more than offset the legacy businesses' declines. Revenue was down sequentially a bit in Q2, as January is typically a seasonal low.
Looking ahead, while Q3 is seasonally our most challenging, we believe revenue will continue to expand in the midterm as the growth businesses continue to become larger contributors to IDT's consolidated results. Three years ago, in the second quarter of fiscal 2022, the segments that held IDT's three growth businesses contributed 34% of the company's consolidated gross profit. By the second quarter of 2025, that percentage of GP from the growth businesses had nearly doubled to 62%, helping to drive IDT's consolidated gross profit to a record 37%, a 400 basis point increase compared to the year-ago quarter. In Q2 of fiscal 2025, the high growth segments had an average gross profit margin of 67% compared to 20% for traditional communications, and the rotation of the revenue mix to the growth businesses should continue to drive gross margin expansion for the foreseeable future.
IDT generated $108.8 million in adjusted EBITDA TTM, and we expect to generate at least $126 million for all of fiscal 2025 as our high-margin growth businesses continue to gain scale, a significant step up from the $89.7 million we generated in fiscal 2024. IDT also has built a very strong balance sheet, including $171 million in cash, cash equivalents, debt securities, and current equity investments at January 31, and we have no debt. IDT returns value directly to our stockholders through both our regular quarterly dividend, which we just increased from $0.05 to $0.06 per share, and through stock repurchases, which totaled $15.8 million over the last 12 months. To wrap up, IDT offers an exceptional opportunity in the small cap space. We are generating increasing levels of cash and return to top-line growth driven by the successes of NRS, Boss Money, and net2phone.
Each of these tech platform businesses is working on a big opportunity with a long runway, and we expect they will generate tremendous value for our shareholders in the coming years. Our balance sheet is strong with robust levels of cash and securities and no debt for positive interest rate exposure. We are returning value to shareholders and are positioned both to pay higher levels of quarterly dividend over time and continue to buy back opportunistically. Now, Marcelo and I would be happy to take your questions.
All right, great. Thanks very much for that presentation. If you do have a question, just enter it through Zoom and we'll get some of those. I'll kick it off here. When we look at the growth of NRS, what's your go-to-market strategy and how do you plan to, I guess, increase that market share penetration within that market?
Sure. We go to the market, Greg, primarily through three channels. We have approximately a sales force that boots on the ground of approximately 100 sales agents that are going door to door to these retailers, most of whom we have relationships with. Through the Boss Revolution, we've been selling Boss Revolution products to them for over two decades. That is invaluable in this market, which is very insular and hard to reach. We also go to market through a call center that's based in Guatemala. We have about 100 agents calling in to retailers around the country to begin the sales process. Finally, we work through technology and payment processing providers, distributors who constitute the largest channel. Those are our three channels. I don't know, Marcelo, if you have anything to add.
Yeah. In terms of the strategy, it has been a dual strategy. On the one hand, we continue to be very focused on trying to grow the total size of the POS network. We have done a very consistent job in the past few years in growing the network on a net basis by about 6,000 new POSs a year, about 1,500 a quarter on average. That continues to be very much part of the focus. At the same time, there has been a lot of effort of going back to the existing base of existing retailers that have the POS. That base has become a pretty large one. As we saw earlier in the presentation, we now have more than 30,000 retailers. Part of the effort is to go back to that base and upsell back to that base.
When I talk about upsell, it means upselling higher SaaS plans. You see that the RPU growth in SaaS revenue has exceeded the growth of the value. Even more so when it comes to merchant services, what we call NRS Pay, our credit card processing, that business has grown by about 50% year-over-year. That is because we are going back to the base and trying to migrate more of the total retailers to become NRS Pay customers. A year ago, about 63% of the total base used to take NRS Pay with them. Today, it is about close to 70%. That makes a huge difference. You see that difference in one of our key metrics, which is the average revenue per terminal, which now has exceeded $300 on a monthly basis.
We are getting more and more revenues from the existing base that we're taking more of our recurring revenues into those services.
Okay, great. Thanks. When you're trying to sell new terminals into this market and expand your penetration, who are you typically up against? What are you replacing? Who are you replacing in the market? I just wanted to better understand maybe your competitive dynamics there.
Yeah. By and large, the NRS story from a competitive standpoint hasn't changed much from what we have been saying over the past two years. The overwhelming majority of new retailers that buy our POS are still signing up for our POS system for the very first time, migrating away from having an old cash register or a shoebox or something like it. That continues to be the trend. We do see competition now in different pockets around the country. It's mostly small, localized, original competitors. None of the large names in the industry usually show up in the map when we think about the competitors. It's really just small, niche type of competition. That bodes well for NRS. I think NRS has really built a real nice competitive moat in this market.
I think that signing up an independent retailer requires a level of interaction and establishing a trusting relationship, which our sales force has been able to do and become good at it over the past 20 years, selling other Boss products into it. I think more and more we create more stickiness with our retailers by introducing more and more services that expand the range of just the typical services you get from a POS. Most recently, we just introduced our partnership with DoorDash, and hopefully we'll do it soon with some of the other large players like Uber Eats and Grubhub. That enables that sole proprietor independent retailer to have his products and services marketed on a broader platform. We do so by interfacing our POS with DoorDash so that DoorDash has real-time information on the inventory and the pricing that each retailer is offering.
It makes the whole transaction process a lot smoother. That is just another way of trying to create that stickiness and the value add for the independent retailer to believe and understand that NRS is the best choice for them when shopping for a POS system.
All right, great. Thanks for that. When we think about the inflection that you mentioned in terms of the growth businesses kind of now becoming big enough to offset the declines on the traditional telecom business, what is the outlook for that traditional telecom business in terms of the trajectory of decline? Has it reached a kind of a stable level? Do you expect it to continue to decline? What is the outlook for that traditional business going forward?
Yeah. I mean, at this point, we are not looking anymore at traditional as being a declining business in terms of the segment as a whole. The IoT voice components of that segment, which is our Boss Pinners business, our host of carrier businesses, the revenues in those businesses probably will continue to trend down over time as more and more people shift away from using voice services to using peer-to-peer communications. The impact to the gross profits and the bottom line are not that large because of a lot of the pricing and channel changes that we made and corridor changes as well as the aggressive cost cutting and the productivity efficiencies that we have achieved over the past few years.
When you add the larger revenue component of that segment, which is our digital payments business, that business is growing and will continue to grow probably in the single digits, but it is becoming a very, very profitable, even more profitable business than it used to be due to a host of reasons, including some very tactical, clever pricing changes that we have made and will probably continue to make. In the totality, IMPO traditional segment now has been quite a stable segment and expecting to grow the EBITDA of that segment this year by about 10% and hopefully continue to do so, okay, in the quarters and years ahead.
Okay. Maybe you can just talk about maybe the capital allocation priorities in terms of the cash flow you're generating from that traditional business, your view on maybe reinvesting back into the business on the growth side and some of the growth businesses versus maybe other capital allocation priorities like share buybacks or dividends.
Right. That is all of the above, right? We are repurchasing stock a little more aggressively than we used to. Hopefully, we'll continue to do that opportunistically. We have increased our dividend by about 20%. We continue to invest into new initiatives within the company, whether it's in other fintech areas. We continue to invest behind growing net2phone. We believe that the newly announced net2phone AI Agent hopefully will be a great success for IDT. We are putting the plans around how to go to market, which we hope to be deploying capital behind it and make this to be a real nice growth opportunity for net2phone. The M&A markets have become, I think, more interesting. We've been looking at different acquisitions. Valuations have come down in certain areas, which makes some of these acquisitions more attractive.
We might be deploying perhaps more capital now in that arena over the next few months.
All right, great. We're kind of at the end of our allotted time. I'll leave it to you for some closing comments, and then we'll wrap it up.
Thank you.
We're good, Greg. Thank you very much.
We very much appreciate it.
All right, great. Thanks a lot, guys. Thanks, everyone, for listening in.
All the best. Bye-bye.
Thanks.