IDT Corporation Crushes Earnings Growth Despite Market Skepticism on Valuation

IDT Corporation (IDT) delivered robust first-quarter fiscal 2026 performance with expanding profitability across its growth segments, yet shares have declined 2.1% since the earnings release ended Oct. 31, 2025—sharply diverging from the S&P 500’s 0.2% dip. The 6.3% monthly selloff against a 0.4% S&P 500 rally underscores investor hesitation despite clear operational momentum.

The Numbers Tell a Different Story Than Market Reaction

The quarter showcased accelerating profitability metrics that contradicted the stock’s post-earnings weakness. Revenue climbed to $322.8 million, up 4.3% year-over-year from $309.6 million. More impressively, operating income surged 30.8% to $30.9 million from $23.6 million, while net income attributable to IDT jumped 29.6% to $22.4 million versus $17.2 million a year prior.

Earnings per share performance was particularly notable: GAAP EPS increased 30.9% to $0.89 from $0.68, with non-GAAP diluted EPS advancing an even stronger 32.4% to $0.94 from $0.71. Profitability was underpinned by gross margin expansion of 180 basis points to 36.6%, as gross profit reached $118.2 million (up 9.8%). Adjusted EBITDA climbed 26% to $37.9 million from $30 million—a meaningful cash generation improvement that suggests underlying business resilience.

Where Growth Is Actually Happening: A Segment Deep Dive

National Retail Solutions—The Recurring Revenue Engine

The NRS segment emerged as the quarter’s standout performer. Revenue surged 22% year-over-year to $37.1 million from $30.4 million, with recurring revenue driving much of the lift, reaching $35.3 million (up 22%) from $28.9 million.

Within the segment, Merchant Services revenue exploded 38%, while SaaS Fees expanded 30%—both reflecting strong adoption momentum. Advertising & Data revenue retreated 15%, primarily due to industry-wide CPM compression as streaming platforms added inventory capacity. Operating performance remained exceptional, with income from operations jumping 35% to $8.9 million from $6.6 million, and adjusted EBITDA surging 33% to $10.3 million from $7.7 million.

The POS terminal installed base continues expanding purposefully. Active terminals grew by 4,800 year-over-year to reach 37,900, while monthly average recurring revenue per terminal improved 6% to $313 from $295. Integration initiatives with DoorDash and Grubhub fueled order-volume growth for participating merchants, while payment processing accounts added 4,600 year-over-year.

Fintech (Including BOSS Money)—Digital Momentum Accelerating

Fintech delivered some of the quarter’s most compelling results. Total segment revenue grew 15% to $42.7 million from $37.1 million, led by a 20% surge in digital channel revenue. Digital send volume exploded 34% year-over-year, reflecting both higher transaction counts and larger average remittance sizes. BOSS Money’s digital transactions represented 84% of total transactions and grew 22% year-over-year, showcasing the channel’s strategic importance.

Profitability improvements were particularly impressive given operational leverage gains. Income from operations nearly doubled, rising 97% to $6.4 million from $3.2 million, while adjusted EBITDA surged 87% to $7.5 million from $4 million. These gains emerged despite a 4% decline in average revenue per transaction—offset by reduced chargebacks, lower payout commissions, and improved operational efficiency enhanced by AI and machine learning capabilities.

Management flagged an important tailwind: a federal excise tax on cash remittances takes effect Jan. 1, 2026, which could widen the performance gap between Fintech’s digital channel and traditional retail alternatives.

net2phone—AI Strategy Beginning to Monetize

Subscription revenue climbed 10% to $23.0 million from $21 million, supported by a 7% expansion in seats to 432,000 from 406,000 and rising demand for premium, higher-value CCaaS seats. Income from operations leapt 94% to $1.9 million from $1 million, while adjusted EBITDA rose 44% to $3.6 million from $2.5 million—even as the company increased investment in AI product development.

The quarter marked a strategic milestone: net2phone recorded its first AI agent sales and launched Coach AI near the period’s end, signaling the early monetization of AI-enabled bundled solutions.

Traditional Communications—Legacy Stability Amid Volume Decline

Traditional Communications revenue slipped 0.5% to $219.5 million from $220.5 million, reflecting continued legacy voice volume erosion. However, operating income edged higher by 1% to $15.8 million from $15.7 million, buoyed by cost efficiencies. Adjusted EBITDA also advanced 2% to $18.9 million from $18.4 million, underscoring the segment’s consistent cash-generation capability despite structural headwinds.

IDT Digital Payments and IDT Global performed well, with the Zendit B2B platform delivering revenue growth exceeding 90% year-over-year—a bright spot within the broader legacy segment.

Why the Margin Expansion Matters

The 180-basis-point gross margin expansion reflected a favorable business mix shift toward higher-margin growth segments (NRS, Fintech, net2phone) while Traditional Communications represented a smaller overall proportion of revenue. Operating leverage in Fintech also benefited from AI-driven improvements to customer service and fraud detection economics, while reduced chargebacks and lower payout commissions directly improved profitability.

Capital intensity remained measured, with capital spending rising 10.3% year-over-year to $5.8 million from $5.3 million.

Management’s Forward View and Capital Allocation

IDT maintained its full-year fiscal 2026 adjusted EBITDA guidance of $141 million to $145 million, implying 7%-10% growth relative to fiscal 2025. Management indicated confidence in reaching this target but signaled it will revisit guidance after observing fiscal second-quarter performance.

Leadership emphasized the strategic role of bundled, AI-enabled solutions across the portfolio. At net2phone, the company is transitioning from standalone products to integrated offerings tailored to customer workflows. At NRS, premium service rollouts including delivery integrations, couponing capabilities, and product-data scan programs are driving recurring revenue traction.

Beyond earnings, IDT repurchased 158,000 shares for $7.6 million during the quarter and declared a $0.06 quarterly dividend payable Dec. 23, 2025. Additionally, the Delaware Supreme Court affirmed dismissal of Straight Path class action claims against the company, resolving litigation favorably.

The Disconnect: Why Isn’t the Market Rewarding This?

The stock’s post-earnings decline stands as a puzzle given the operational quality. The timing of cash flow may have played a role—operating cash flow turned negative, largely attributable to working-capital timing centered on quarter-end falling on a Friday, when prefunding needs for BOSS Money typically peak. This technical factor may have temporarily spooked some investors despite being cyclical.

Alternatively, the market may be digesting the company’s guidance conservatively or reassessing valuation multiples in a changing rate environment. Nonetheless, the fundamentals—accelerating profitability, expanding margins, digital channel momentum, and AI commercialization—suggest IDT has built meaningful strategic positioning across its portfolio that could reward patient investors.