IDT's Quiet Pivot Hits Full Stride: AI, Remittances, and a Record Gross Margin
The legacy telecom name caps a 36% rally by showing its three high-margin growth engines are now the tail that wags the dog.
IDT · Earnings Call · 2026-06-03
A Growth Rotation That's Finally Showing Up in the Numbers
IDT's fiscal Q3 (period ending April 30, 2026) is the clearest evidence yet that the company has moved beyond its long-distance heritage. Consolidated revenue rose 5% to $315.7 million while gross profit climbed 9% to a record $122.5 million, but the real story is the mix. Gross margin hit a record 38.8%, up 170 basis points year over year, as growth segments — NRS, FinTech and Net2phone — increased their share of revenue to 34% from 30% and their contribution to gross profit to 67% from 61%. CFO Marcelo Fischer put it plainly: “The underlying growth dynamic at IDT remains in force... our growth businesses gross profit contribution increased to 67% from 61% a year earlier.” — Marcelo Fischer · 2026-06-03 This is exactly what CEO Shmuel Jonas called "the continued expansion and operating leverage of our 3 higher-margin businesses."
The financial firepower is visible in the raised guidance: full-year adjusted EBITDA is now expected at $150–152 million, up from $147–149 million, representing 15% growth over fiscal 2025. The four consecutive quarters of discipline are reflected in an operating income of $29.8 million for the quarter, up 12%, and a net margin that remains above 7%. EBITDA guidance has now been raised twice this year, a sign that management is gaining confidence in the momentum.
Net2phone's AI Pivot Moves from Promise to Practice
The most consequential development may be inside Net2phone. The business has long been the "quiet" growth engine, but this quarter it generated the highest income growth of any segment: AI offerings are now materially moving the needle. CEO Jonas described how the company's own AI products handle a meaningful share of customer interactions: “we're probably handling 30% of our customer service calls using our own product... on chat it's, I think, above 50% at this point that's being handled by our products.” — Samuel Jonas · 2026-06-03 This is not just about internal efficiency; it's the foundation for selling AI tools to external customers. CFO Fischer noted that Net2phone has crossed $100 million in monthly recurring revenue and that "the AI element is becoming a larger portion of those new sales, still small relatively, but becoming a bigger portion." The company plans to monetize this via a premium product called Flex, and executives are openly warming to the idea of spinning off the unit.
It's becoming more appealing to possibly do something... I'm very, very confident that Netphone is going to do much better than our investors think it's going to do.
New Growth Vectors: OnCore and International NRS
Beyond AI, IDT is expanding its strategic footprint. The acquisition of a controlling stake in OnCore Digital – a digital media brokerage – gives NRS the expertise to better monetize its screen network. Jonas said, “they have a lot of expertise internally that we as a company didn't have. They have a lot of relationships that we as a company didn't have.” — Samuel Jonas · 2026-06-03 This is a direct response to the advertising softness that has been a recurring drag. controlling stake in OnCore Digital represents a small tuck-in (about $6 million for an 80% stake), but it signals a deliberate move to add higher-margin digital media to the NRS stack.
Meanwhile, NRS planted its first terminal in Colombia – a first international expansion outside Canada. This follows the company's earlier stated ambition to push into adjacent markets. In a prior call, Jonas described the adjacency opportunity: “I mean there's a bunch of adjacent markets... international markets that we've yet to really launch in with the exception of Canada.” — Samuel Jonas, Chief Executive Officer · 2025-12-04 Colombia is a small test, but it shows the strategic optionality of the platform.
The Remittance Tailwind and a Valuation Rerating
BOSS Money continues to be a standout beneficiary of the federal remittance tax, which took effect in January 2026. Digital transactions were up 20% year over year and send volume jumped 40%. The trend has been building since the tax was introduced. As Fischer noted in an earlier call, “since the remittance tax kicked in, in January, we saw digital transactions increase significantly.” — Marcelo Fischer, Chief Financial Officer · 2026-03-10 That momentum carried into May, which the company described as its strongest transaction month ever.
The market has taken notice. IDT's stock has rallied 36.7% over the trailing 90 days, and the full-history return sits at over 3,400%. Yet the valuation remains modest. Price to operating income stands at around 11.9x, and the balance sheet is debt-free with $251 million in cash. The company bought back $4 million of stock during the quarter, continuing a strategy of returning capital while keeping flexibility.
Still, there's a cautionary note. Free cash flow (after stock-based compensation) fell to $11 million in the quarter, down 84% year over year, as the company is spending heavily on customer acquisition and product development. That's the cost of the growth rotation: free cash flow margin compressed to 3.5% from 8.5% the prior quarter. This is likely temporary given the strong gross profit expansion, but it's worth watching.
What Changed and Why It Matters
The change at IDT is not a single event but a culmination of a multi-year strategy. The mix shift has reached an inflection point: the three growth segments now produce more than half of total adjusted EBITDA, up from 29% a year ago. The AI traction at Net2phone, the OnCore acquisition, and the international expansion all point to a management team that is proactively building the next chapter. For investors, the 90-day rally may be just the recognition of what the financials have been showing all along – a company that has successfully transitioned from a declining telecom (and a collection of quirky side bets) into a compounder with three credible growth engines. The raised guidance and robust margins provide the evidence, and the share price is finally reflecting it.