UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR
THE QUARTERLY PERIOD ENDED
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission
File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| Trading
symbol: |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐
As of June 6, 2023, the registrant had the following shares outstanding:
Class A common stock, $.01 par value: shares outstanding (excluding 1,698,000 treasury shares)
Class B common stock, $.01 par value: shares outstanding (excluding 3,921,172 treasury shares)
IDT CORPORATION
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements (Unaudited) |
IDT CORPORATION
CONSOLIDATED BALANCE SHEETS
April 30, 2023 | July 31, 2022 | |||||||
| (Unaudited) | (Note 1) | |||||||
| (in thousands, except per share data) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash and cash equivalents | ||||||||
| Debt securities | ||||||||
| Equity investments | ||||||||
| Trade
accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Disbursement prefunding | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Goodwill | ||||||||
| Other intangibles, net | ||||||||
| Equity investments | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deferred income tax assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, redeemable noncontrolling interest, and equity | ||||||||
| Current liabilities: | ||||||||
| Trade accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Customer deposits | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Redeemable noncontrolling interest | ||||||||
| Equity: | ||||||||
| IDT Corporation stockholders’ equity: | ||||||||
| Preferred stock, $ par value; authorized shares—; shares issued | ||||||||
| Class A common stock, $ par value; authorized shares—; shares issued and shares outstanding at April 30, 2023 and July 31, 2022 | ||||||||
| Class B common stock, $ par value; authorized shares—; and shares issued and and shares outstanding at April 30, 2023 and July 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost, consisting of and shares of Class A common stock and and shares of Class B common stock at April 30, 2023 and July 31, 2022, respectively | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Retained earnings (accumulated deficit) | ( | ) | ||||||
| Total IDT Corporation stockholders’ equity | ||||||||
| Noncontrolling interests | ||||||||
| Total equity | ||||||||
| Total liabilities, redeemable noncontrolling interest, and equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| 3 |
IDT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Direct cost of revenues (exclusive of depreciation and amortization) | ||||||||||||||||
| Selling, general and administrative (i) | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Severance | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Other operating expense, net (see Note 10) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income from operations | ||||||||||||||||
| Interest income, net | ||||||||||||||||
| Other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income before income taxes | ||||||||||||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income | ||||||||||||||||
| Net income attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income attributable to IDT Corporation | $ | $ | $ | $ | ||||||||||||
| Earnings per share attributable to IDT Corporation common stockholders: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted-average number of shares used in calculation of earnings per share: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| (i) Stock-based compensation included in selling, general and administrative expenses | $ | $ | $ | $ | ||||||||||||
See accompanying notes to consolidated financial statements.
| 4 |
IDT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Change in unrealized loss on available-for-sale securities | ( | ) | ( | ) | ||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive income | ||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive income attributable to IDT Corporation | $ | $ | $ | $ | ||||||||||||
See
accompanying notes to consolidated financial statements.
| 5 |
IDT CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
Three Months Ended April 30, 2023 (in thousands) | ||||||||||||||||||||||||||||||||
| IDT Corporation Stockholders | ||||||||||||||||||||||||||||||||
| Class
A Common Stock | Class
B Common Stock | Additional
Paid-In Capital | Treasury
Stock | Accumulated
Other Comprehensive Loss | Retained
Earnings | Noncontrolling
Interests | Total
Equity | |||||||||||||||||||||||||
| BALANCE AT JANUARY 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Repurchases of Class B common stock through repurchase program | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Restricted Class B common stock purchased from employees | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| BALANCE AT APRIL 30, 2023 | $ | | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||
Nine Months Ended April 30, 2023 (in thousands) | ||||||||||||||||||||||||||||||||
| IDT Corporation Stockholders | ||||||||||||||||||||||||||||||||
| Class
A Common Stock | Class
B Common Stock | Additional
Paid-In Capital | Treasury
Stock | Accumulated
Other Comprehensive Loss | (Accumulated
Deficit) Retained Earnings | Noncontrolling
Interests | Total
Equity | |||||||||||||||||||||||||
| BALANCE AT JULY 31, 2022 | $ | | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||
| Repurchases of Class B common stock through repurchase program | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Restricted Class B common stock purchased from employees | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock issued to certain executive officers for bonus payments | ||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| BALANCE AT APRIL 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| 6 |
IDT CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY—Continued
(Unaudited)
Three Months Ended April 30, 2022 (in thousands) | ||||||||||||||||||||||||||||||||
| IDT Corporation Stockholders | ||||||||||||||||||||||||||||||||
| Class
A Common Stock | Class
B Common Stock | Additional
Paid-In Capital | Treasury
Stock | Accumulated
Other Comprehensive Loss | Accumulated
Deficit | Noncontrolling
Interests | Total
Equity | |||||||||||||||||||||||||
| BALANCE AT JANUARY 31, 2022 | $ | | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||
| Exercise of stock options by Howard S. Jonas | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||
| Business acquisition | ||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| BALANCE AT APRIL 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Nine Months Ended April 30, 2022 (in thousands) | ||||||||||||||||||||||||||||||||
| IDT Corporation Stockholders | ||||||||||||||||||||||||||||||||
| Class
A Common Stock | Class
B Common Stock | Additional
Paid-In Capital | Treasury
Stock | Accumulated
Other Comprehensive Loss | Accumulated
Deficit | Noncontrolling
Interests | Total
Equity | |||||||||||||||||||||||||
| BALANCE AT JULY 31, 2021 | $ | | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||
| Exercise of stock options by Howard S. Jonas | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||
| Restricted Class B common stock purchased from employees | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Business acquisition | ||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| BALANCE AT APRIL 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | | $ | |||||||||||||||||
See accompanying notes to consolidated financial statements.
| 7 |
IDT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended April 30, | ||||||||
| 2023 | 2022 | |||||||
| (in thousands) | ||||||||
| Operating activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Deferred income taxes | ||||||||
| Provision for doubtful accounts receivable | ||||||||
| Net unrealized loss from marketable securities | ||||||||
| Stock-based compensation | ||||||||
| Other | ||||||||
| Change in assets and liabilities: | ||||||||
| Trade accounts receivable | ( | ) | ( | ) | ||||
| Disbursement prefunding, prepaid expenses, other current assets, and other assets | ( | ) | ( | ) | ||||
| Trade accounts payable, accrued expenses, other current liabilities, and other liabilities | ( | ) | ( | ) | ||||
| Customer deposits at IDT Financial Services Limited (Gibraltar-based bank) | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Investing activities | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Purchase of convertible preferred stock in equity method investment | ( | ) | ( | ) | ||||
| Payments for acquisitions, net of cash acquired | ( | ) | ||||||
| Purchases of debt securities and equity investments | ( | ) | ( | ) | ||||
| Proceeds from maturities and sales of debt securities and redemptions of equity investments | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||
| Proceeds from other liabilities | ||||||||
| Repayment of other liabilities. | ( | ) | ( | ) | ||||
| Proceeds from borrowings under revolving credit facility | ||||||||
| Repayment of borrowings under revolving credit facility. | ( | ) | ( | ) | ||||
| Proceeds from sale of redeemable equity in subsidiary | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Repurchases of Class B common stock | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents | ( | ) | ||||||
| Net decrease in cash, cash equivalents, and restricted cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental schedule of non-cash investing and financing activities | ||||||||
| Conversion of equity method investment’s secured promissory notes into convertible preferred stock | $ | |||||||
| Stock issued to certain executive officers for bonus payments | $ | $ | ||||||
| Liabilities incurred for acquisitions | $ | $ | ||||||
| Shares of the Company’s Class B common stock issued for acquisition | $ | $ | ||||||
| Cashless exercise of stock options in exchange for shares of the Company’s Class B common stock | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| 8 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1—Basis of Presentation
The accompanying unaudited consolidated financial statements of IDT Corporation and its subsidiaries (the “Company” or “IDT”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended April 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2023. The balance sheet at July 31, 2022 has been derived from the Company’s audited financial statements at that date but does not include all of the information and notes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2022, as filed with the U.S. Securities and Exchange Commission (the “SEC”).
The Company’s fiscal year ends on July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated (e.g., fiscal 2023 refers to the fiscal year ending July 31, 2023).
Note 2—Business Segment Information
As
of August 1, 2022, the Company revised its reportable business segments primarily to reflect the growth of its financial technology businesses
and their increased contributions to the Company’s consolidated results. The Company’s
The Company’s reportable segments are distinguished by types of service, customers, and methods used to provide their services. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker. The accounting policies of the segments are the same as the accounting policies of the Company as a whole. There are no significant asymmetrical allocations to segments. The Company evaluates the performance of its business segments based primarily on income (loss) from operations.
The Fintech segment is comprised of BOSS Money, a provider of international money remittance and related value/payment transfer services, as well as other, significantly smaller, financial services businesses, including Leaf Global Fintech Corporation (“Leaf”), a provider of digital wallet services in emerging markets, a variable interest entity (“VIE”) that operates money transfer businesses (see Note 9), and IDT Financial Services Limited (“IDT Financial Services”), the Company’s Gibraltar-based bank.
The NRS segment is an operator of a nationwide point of sale (“POS”) network providing independent retailers with store management software, electronic payment processing, and other ancillary merchant services. NRS’ POS platform provides marketers with digital out-of-home advertising and transaction data.
The net2phone segment is comprised of net2phone’s cloud communications offerings.
The Traditional Communications segment includes IDT Digital Payments (formerly Mobile Top-Up), which enables customers to transfer airtime and bundles of airtime, messaging, and data to international and domestic mobile accounts, BOSS Revolution Calling, an international long-distance calling service marketed primarily to immigrant communities in the United States and Canada, and IDT Global, a wholesale provider of international voice and SMS termination and outsourced traffic management solutions to telecoms worldwide. Traditional Communications also includes other small businesses and offerings including early-stage business initiatives and mature businesses in harvest mode.
Corporate costs mainly include compensation, consulting fees, treasury, tax and accounting services, human resources, corporate purchasing, corporate governance including Board of Directors’ fees, internal and external audit, investor relations, corporate insurance, corporate legal, and other corporate-related general and administrative expenses. Corporate does not generate any revenues, nor does it incur any direct cost of revenues.
| 9 |
Operating results for the business segments of the Company were as follows:
| (in thousands) | Fintech | National Retail Solutions | net2phone | Traditional Communications | Corporate | Total | ||||||||||||||||||
| Three Months Ended April 30, 2023 | ||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Three Months Ended April 30, 2022 | ||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | | $ | $ | |||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Nine Months Ended April 30, 2023 | ||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Nine Months Ended April 30, 2022 | ||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
Note 3—Revenue Recognition
The Company earns revenue from contracts with customers, primarily through the provision of retail telecommunications and payment offerings as well as wholesale international voice and SMS termination. BOSS Money, NRS, and net2phone are technology-driven, synergistic businesses that leverage the Company’s core assets. BOSS Money and NRS’ revenues are primarily recognized at a point in time, and net2phone’s revenue is mainly recognized over time. Traditional Communications are mostly minute-based, paid-voice communications services, and revenue is primarily recognized at a point in time. The Company’s most significant revenue streams are from IDT Digital Payments, BOSS Revolution Calling, and IDT Global. IDT Digital Payments and BOSS Revolution Calling are sold direct-to-consumers and through distributors and retailers.
Disaggregated Revenues
The following table shows the Company’s revenues disaggregated by business segment and service offered to customers:
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| BOSS Money | $ | $ | $ | $ | ||||||||||||
| Other | ||||||||||||||||
| Total Fintech | ||||||||||||||||
| National Retail Solutions | ||||||||||||||||
| net2phone | ||||||||||||||||
| IDT Digital Payments | ||||||||||||||||
| BOSS Revolution Calling | ||||||||||||||||
| IDT Global | ||||||||||||||||
| Other | ||||||||||||||||
| Total Traditional Communications | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The following table shows the Company’s revenues disaggregated by geographic region, which is determined based on selling location:
| (in thousands) | Fintech | National Retail Solutions | net2phone | Traditional Communications | Total | |||||||||||||||
| Three Months Ended April 30, 2023 | ||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||
| Outside the United States: | ||||||||||||||||||||
| United Kingdom | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total outside the United States | ||||||||||||||||||||
| Total | $ | $ | $ | $ | | $ | ||||||||||||||
| 10 |
| (in thousands) | Fintech | National Retail Solutions | net2phone | Traditional Communications | Total | |||||||||||||||
| Three Months Ended April 30, 2022 | ||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||
| Outside the United States: | ||||||||||||||||||||
| United Kingdom | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total outside the United States | ||||||||||||||||||||
| Total | $ | $ | $ | $ | | $ | ||||||||||||||
| (in thousands) | Fintech | National Retail Solutions | net2phone | Traditional Communications | Total | |||||||||||||||
| Nine Months Ended April 30, 2023 | ||||||||||||||||||||
| United States | $ | $ | $ | $ | | $ | ||||||||||||||
| Outside the United States: | ||||||||||||||||||||
| United Kingdom | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total outside the United States | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| (in thousands) | Fintech | National Retail Solutions | net2phone | Traditional Communications | Total | |||||||||||||||
| Nine Months Ended April 30, 2022 | ||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||
| Outside the United States: | ||||||||||||||||||||
| United Kingdom | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total outside the United States | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
Remaining Performance Obligations
The Company does not have any significant revenue from performance obligations satisfied or partially satisfied in previous reporting periods. The Company’s remaining performance obligations at April 30, 2023 and July 31, 2022 primarily had an original expected duration of one year or less.
Accounts Receivable and Contract Balances
The timing of revenue recognition may differ from the time of billing to the Company’s customers. Trade accounts receivable in the Company’s consolidated balance sheets represent unconditional rights to consideration. The Company would record a contract asset when revenue is recognized in advance of its right to bill and receive consideration. The Company has not identified any contract assets.
Contract liabilities arise when the Company receives consideration or bills its customers prior to providing the goods or services promised in the contract. The Company’s contract liability balance is primarily payments received for prepaid BOSS Revolution Calling. Contract liabilities are recognized as revenue when services are provided to the customer. The contract liability balances are presented in the Company’s consolidated balance sheets as “Deferred revenue”.
| 11 |
The following table presents information about the Company’s contract liability balance:
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenue recognized in the period from amounts included in the contract liability balance at the beginning of the period | $ | $ | $ | $ | ||||||||||||
Deferred Customer Contract Acquisition and Fulfillment Costs
The Company recognizes as an asset its incremental costs of obtaining a contract with a customer that it expects to recover. The Company’s incremental costs of obtaining a contract with a customer are sales commissions paid to employees and third parties on sales to end users. If the amortization period were one year or less for the asset that would be recognized from deferring these costs, the Company applies the practical expedient whereby the Company charges these costs to expense when incurred. For net2phone sales, the Company defers these costs and amortizes them over the expected customer relationship period when it is expected to exceed one year.
The Company’s costs to fulfill its contracts do not meet the criteria to be recognized as an asset, therefore these costs are charged to expense as incurred.
The Company’s deferred customer contract acquisition costs were as follows:
April 30, 2023 | July 31, 2022 | |||||||
| (in thousands) | ||||||||
| Deferred customer contract acquisition costs included in “Other current assets” | $ | $ | ||||||
| Deferred customer contract acquisition costs included in “Other assets” | ||||||||
| Total | $ | $ | ||||||
The Company’s amortization of deferred customer contract acquisition costs during the periods were as follows:
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Amortization of deferred customer contract acquisition costs | $ | $ | $ | $ | ||||||||||||
Note 4—Leases
The
Company’s leases primarily consist of operating leases for office space. These leases have remaining terms from less than
net2phone is the lessee under equipment leases that are classified as finance leases. The assets and liabilities related to these finance leases are not material to the Company’s consolidated balance sheets.
The
Company leases office and parking space in a building and parking garage located at 520 Broad Street, Newark, New Jersey that was previously
owned by the Company’s former subsidiary, Rafael Holdings, Inc. (“Rafael”). On August 22, 2022, Rafael sold the building
and parking garage to an unrelated third party. The Company’s lease in that building continues with the new owner. The Company
leases office space in Israel from Rafael. Howard S. Jonas, the Chairman of the Company (an executive officer position) and the Chairman
of the Company’s Board of Directors, is also the Chairman of the Board of Directors and Executive Chairman of Rafael.
| 12 |
Supplemental disclosures related to the Company’s operating leases were as follows:
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Short-term lease cost | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | $ | ||||||||||||
April 30, 2023 | July 31, 2022 | |||||||
| Weighted-average remaining lease term-operating leases | ||||||||
| Weighted-average discount rate-operating leases | % | % | ||||||
In
the nine months ended April 30, 2023 and 2022, the Company obtained right-of-use assets of $
The Company’s aggregate operating lease liability was as follows:
April 30, 2023 | July 31, 2022 | |||||||
| (in thousands) | ||||||||
| Operating lease liabilities included in “Other current liabilities” | $ | $ | ||||||
| Operating lease liabilities included in noncurrent liabilities | ||||||||
| Total | $ | $ | ||||||
Future minimum maturities of operating lease liabilities were as follows (in thousands):
| Twelve-month period ending April 30: | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less imputed interest | ( | ) | ||
| Total operating lease liabilities | $ |
Note 5—Cash, Cash Equivalents, and Restricted Cash and Cash Equivalents
The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported in the consolidated balance sheets that equals the total of the same amounts reported in the consolidated statements of cash flows:
April 30, 2023 | July 31, 2022 |
| ||||||
| (in thousands) | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash and cash equivalents | ||||||||
| Total cash, cash equivalents, and restricted cash and cash equivalents | $ | $ | ||||||
At
April 30, 2023 and July 31, 2022, restricted cash and cash equivalents included $
| 13 |
Company Restricted Cash and Cash Equivalents
The
Company treats unrestricted cash and cash equivalents held by IDT Payment Services, Inc. and IDT Payment Services of New York, LLC, which
provide the Company’s international money transfer services in the United States, as substantially restricted and unavailable for
other purposes. At April 30, 2023 and July 31, 2022, “Cash and cash equivalents” in the Company’s consolidated balance
sheets included an aggregate of $
Note 6—Debt Securities
The following is a summary of available-for-sale debt securities:
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| (in thousands) | ||||||||||||||||
| April 30, 2023: | ||||||||||||||||
| Certificates of deposit* | $ | $ | $ | ( | ) | $ | ||||||||||
| U.S. Treasury bills and notes | ( | ) | ||||||||||||||
| Government sponsored enterprises notes | ( | ) | ||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| July 31, 2022: | ||||||||||||||||
| Certificates of deposit* | $ | $ | $ | ( | ) | $ | ||||||||||
| U.S. Treasury bills and notes | ( | ) | ||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Municipal bonds | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| * |
Proceeds
from maturities and sales of debt securities and redemptions of equity investments were $
The contractual maturities of the Company’s available-for-sale debt securities at April 30, 2023 were as follows:
| Fair Value | ||||
| (in thousands) | ||||
| Within one year | $ | |||
| After one year through five years | ||||
| After five years through ten years | ||||
| After ten years | ||||
| Total | $ | |||
The following available-for-sale debt securities were in an unrealized loss position for which other-than-temporary impairments were not recognized:
Unrealized Losses | Fair Value | |||||||
| (in thousands) | ||||||||
| April 30, 2023: | ||||||||
| Certificates of deposit | $ | $ | ||||||
| U.S. Treasury bills and notes | ||||||||
| Government sponsored enterprises notes | ||||||||
| Corporate bonds | ||||||||
| Total | $ | $ | ||||||
| July 31, 2022: | ||||||||
| Certificates of deposit | $ | $ | ||||||
| U.S. Treasury bills and notes | ||||||||
| Corporate bonds | ||||||||
| Municipal bonds | ||||||||
| Total | $ | $ | ||||||
| 14 |
The following available-for-sale debt securities included in the tables above were in a continuous unrealized loss position for 12 months or longer:
Unrealized Losses | Fair Value | |||||||
| (in thousands) | ||||||||
| April 30, 2023: | ||||||||
| U.S. Treasury bills and notes | $ | $ | ||||||
| Corporate bonds | ||||||||
| Total | $ | $ | ||||||
| July 31, 2022: | ||||||||
| U.S. Treasury bills and notes | $ | $ | ||||||
| Corporate bonds | ||||||||
| Total | $ | $ | ||||||
At April 30, 2023 and July 31, 2022, the Company did not intend to sell any of the debt securities included in the table above, and it is not more likely than not that the Company will be required to sell any of these securities before recovery of the unrealized losses, which may be at maturity.
Note 7—Equity Investments
Equity investments consist of the following:
April 30, 2023 | July 31, 2022 | |||||||
| (in thousands) | ||||||||
| Zedge, Inc. Class B common stock, shares at April 30, 2023 and July 31, 2022 | $ | $ | ||||||
| Rafael Holdings, Inc. Class B common stock, and shares at April 30, 2023 and July 31, 2022, respectively | ||||||||
| Other marketable equity securities | ||||||||
| Fixed income mutual funds | ||||||||
| Current equity investments | $ | $ | ||||||
| Visa Inc. Series C Convertible Participating Preferred Stock (“Visa Series C Preferred”) | $ | $ | ||||||
| Visa Inc. Series A Convertible Participating Preferred Stock (“Visa Series A Preferred”) | ||||||||
| Convertible preferred stock—equity method investment | ||||||||
| Hedge funds | ||||||||
| Other | ||||||||
| Noncurrent equity investments | $ | $ | ||||||
The Company received the shares of Zedge, Inc. (“Zedge”) Class B common stock and of the shares of Rafael Class B common stock set forth in the table above in connection with the lapsing of restrictions on Zedge and Rafael restricted stock held by certain of the Company’s employees and the Company’s payment of taxes on behalf of its employees related thereto. The Company purchased shares of Rafael Class B common stock in fiscal 2021. The Company sold shares of Rafael Class B common stock in November 2022. Howard S. Jonas is the Vice-Chairman of the Board of Directors of Zedge.
| 15 |
On
July 28, 2022, in connection with Visa Inc.’s second mandatory release assessment, the Company received shares of Visa Series
A Preferred and the conversion adjustment for Visa Series C Preferred was reduced to . In August 2022, the shares of Visa Series
A Preferred were converted into shares of Visa Class A common stock, which the Company sold for $
The changes in the carrying value of the Company’s equity investments without readily determinable fair values for which the Company elected the measurement alternative was as follows:
| Three
Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Adjustment for observable transactions involving a similar investment from the same issuer | ( | ) | ( | ) | ||||||||||||
| Impairments | ||||||||||||||||
| Balance, end of the period | $ | $ | $ | $ | ||||||||||||
The
Company increased the carrying value of the shares of Visa Series C Preferred it held by $
Unrealized gains and losses for all equity investments measured at fair value included the following:
| Three
Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net losses recognized during the period on equity investments | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less: net gains recognized during the period on equity investments sold during the period | ||||||||||||||||
| Unrealized losses recognized during the period on equity investments still held at the reporting date | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The unrealized gains and losses for all equity investments measured at fair value in the table above included the following:
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Unrealized gains (losses) recognized during the period on equity investments: | ||||||||||||||||
| Rafael Class B common stock | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Zedge Class B common stock | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Equity Method Investment
On
February 2, 2021, the Company paid $
The Company accounted for this investment using the equity method since the Series B and Series C convertible preferred stock were in-substance common stock, and the Company could exercise significant influence over the operating and financial policies of the EMI.
As
of July 31, 2022, the Company was the holder of secured promissory notes made by the EMI in exchange for loans of an aggregate of $
On
April 6, 2023, in accordance with an Agreement and Plan of Merger dated as of April 5, 2023, the EMI merged with and into its subsidiary,
with the subsidiary being the surviving corporation. Effective with the merger, the EMI has no common stock outstanding, each share of
the EMI’s convertible preferred stock was converted into shares of the subsidiary’s Series A Convertible Preferred Stock
(“EMI Preferred Stock”), and the principal and accrued interest of the EMI’s secured promissory notes was converted
into shares of EMI Preferred Stock (the “Conversions”). In addition, each of the EMI’s shareholders agreed to purchase additional shares of EMI Preferred Stock, for which the Company
paid $
The Company accounts for this investment using the equity method since the Company can exercise significant influence over the operating and financial policies of the EMI but it does not have a controlling interest.
| 16 |
The
Company determined that on the dates of the acquisitions, there were differences between its investment in the EMI and its proportional
interest in the equity of the EMI of an aggregate of $
The following table summarizes the change in the balance of the Company’s equity method investment:
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balance, beginning of period | $ | ( | ) | $ | $ | $ | ||||||||||
| Purchase of convertible preferred stock | ||||||||||||||||
| Conversion of secured promissory notes into convertible preferred stock | ||||||||||||||||
| Equity in the net loss of investee | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of equity method basis difference | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance, end of the period | $ | $ | $ | $ | ||||||||||||
Summarized financial information of the EMI was as follows:
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Direct cost of revenues | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 17 |
Note 8—Fair Value Measurements
The following table presents the balance of assets and liabilities measured at fair value on a recurring basis:
| Level 1 (1) | Level 2 (2) | Level 3 (3) | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
| April 30, 2023 | ||||||||||||||||
| Debt securities | $ | $ | $ | $ | ||||||||||||
| Equity investments included in current assets | ||||||||||||||||
| Equity investments included in noncurrent assets | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Acquisition consideration included in: | ||||||||||||||||
| Other current liabilities | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Other noncurrent liabilities | ( | ) | ( | ) | ||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| July 31, 2022 | ||||||||||||||||
| Debt securities | $ | $ | $ | $ | ||||||||||||
| Equity investments included in current assets | ||||||||||||||||
| Equity investments included in noncurrent assets | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Acquisition consideration included in: | ||||||||||||||||
| Other current liabilities | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Other noncurrent liabilities | ( | ) | ( | ) | ||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| (1) |
| (2) |
| (3) |
At
April 30, 2023 and July 31, 2022, the Company had $
The following table summarizes the change in the balance of the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Total gains (losses) recognized in “Other expense, net” | ( | ) | ( | ) | ||||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
| Change in unrealized gains or losses for the period included in earnings for assets held at the end of the period | $ | $ | $ | $ | ||||||||||||
The following table summarizes the change in the balance of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Transfer into Level 3 from acquisitions | ||||||||||||||||
| Payments | ( | ) | ( | ) | ||||||||||||
| Total losses (gains) included in: | ||||||||||||||||
| “Other operating expense, net” | ( | ) | ( | ) | ||||||||||||
| Interest expense included in “Interest income, net” | ||||||||||||||||
| “Foreign currency translation adjustment” | ( | ) | ( | ) | ||||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
| Change in unrealized gains or losses for the period included in earnings for liabilities held at the end of the period | $ | $ | $ | $ | ||||||||||||
| 18 |
In
the nine months ended April 30, 2023, the Company paid an aggregate of $
Fair Value of Other Financial Instruments
The estimated fair value of the Company’s other financial instruments was determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting these data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
Cash and cash equivalents, restricted cash and cash equivalents, other current assets, customer deposits, and other current liabilities. At April 30, 2023 and July 31, 2022, the carrying amount of these assets and liabilities approximated fair value because of the short period of time to maturity. The fair value estimates for cash, cash equivalents, and restricted cash and cash equivalents were classified as Level 1 and other current assets, customer deposits, and other current liabilities were classified as Level 2 of the fair value hierarchy.
Other assets and other liabilities. At April 30, 2023 and July 31, 2022, the carrying amount of these assets and liabilities approximated fair value. The fair values were estimated based on the Company’s assumptions, which were classified as Level 3 of the fair value hierarchy.
Note 9—Variable Interest Entity
The Company is the primary beneficiary of a VIE that operates money transfer businesses. The Company determined that, effective May 31, 2021, it had the power to direct the activities of the VIE that most significantly impact its economic performance, and the Company has the obligation to absorb losses of and the right to receive benefits from the VIE that could potentially be significant to it. As a result, the Company consolidates the VIE. The Company does not currently own any interest in the VIE and thus the net income incurred by the VIE was attributed to noncontrolling interests in the accompanying consolidated statements of income.
The VIE’s net income and aggregate funding provided by (repaid to) the Company were as follows:
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net income of the VIE | $ | $ | $ | $ | ||||||||||||
| Aggregate funding provided by (repaid to) the Company, net | $ | $ | $ | $ | ( | ) | ||||||||||
The VIE’s summarized consolidated balance sheet amounts are as follows:
April 30, 2023 | July 31, 2022 | |||||||
| (in thousands) | ||||||||
| Assets: | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Trade accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Due from the Company | ||||||||
| Property, plant, and equipment, net | ||||||||
| Other intangibles, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and noncontrolling interests: | ||||||||
| Trade accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Other current liabilities | ||||||||
| Due to the Company | ||||||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Noncontrolling interests | ||||||||
| Total liabilities and noncontrolling interests | $ | $ | ||||||
The VIE’s assets may only be used to settle the VIE’s obligations and may not be used for other consolidated entities. The VIE’s liabilities are non-recourse to the general credit of the Company’s other consolidated entities.
| 19 |
Note 10—Other Operating Expense, Net
The following table summarizes the other operating expense, net by business segment:
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Corporate—Straight Path Communications Inc. class action legal fees | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Corporate—Straight Path Communications Inc. class action insurance claims | ||||||||||||||||
| Fintech—write-off of contingent consideration liability | ||||||||||||||||
| Fintech— government grants | ||||||||||||||||
| net2phone—write-off of contingent consideration liability | ||||||||||||||||
| net2phone—other | ( | ) | ||||||||||||||
| Traditional Communications— cable telephony customer indemnification claim | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Traditional Communications—contingent consideration liability | ( | ) | ( | ) | ||||||||||||
| Traditional Communications—other | ( | ) | ( | ) | ||||||||||||
| Total other operating expense, net | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Straight Path Communications Inc. Class Action
As discussed in Note 16, the Company (as well as other defendants) has been named in a pending class action on behalf of the stockholders of the Company’s former subsidiary, Straight Path Communications Inc. (“Straight Path”). The Company incurred legal fees and recorded offsetting gains from insurance claims related to this action in the three and nine months ended April 30, 2023 and 2022.
Contingent Consideration Liabilities
In
the nine months ended April 30, 2023, the Company determined that the requirements for a portion of the contingent consideration payments
related to the Leaf acquisition would not be met. In addition, in the nine months ended April 30, 2022, the Company determined that the
requirements for a contingent consideration payment related to an acquisition in December 2019 would not be met before the expiration
date. The Company recognized gains on the write-off of these contingent consideration payment obligations in the Fintech and net2phone
segments, respectively. Also, in the three and nine months ended April 30, 2023, the Company increased the estimated fair value of acquisition-related
contingent consideration in its Traditional Communications segment by $
Government Grants
In the nine months ended April 30, 2023 and in the three and nine months ended April 30, 2022, Leaf received payments from government grants for the development and commercialization of blockchain-backed financial technologies.
Indemnification Claim
Beginning
in June 2019, as part of a commercial resolution, the Company indemnified a cable telephony customer related to patent infringement claims
brought against the customer. On May 8, 2023, the Company and the customer agreed to release the Company from the indemnification agreement in
exchange for $
| 20 |
Note 11—Revolving Credit Facility
The
Company’s subsidiary, IDT Telecom, Inc. (“IDT Telecom”), entered into a credit agreement, dated as of May 17, 2021,
with TD Bank, N.A. for a revolving credit facility for up to a maximum principal amount of $
Note 12—Equity
Stock Issued to Certain Executive Officers for Bonus Payments
In
the nine months ended April 30, 2023, certain executive officers of the Company received performance bonuses for fiscal 2022 of an
aggregate of $
2022 Deferred Stock Units Equity Incentive Program
The weighted average grant date fair value per DSU was $. At April 30, 2023, there was $ million of total unrecognized compensation cost related to non-vested DSUs.
2019 Deferred Stock Units Equity Incentive Program
The Company had a prior equity incentive program in the form of DSUs that, upon vesting, entitled the grantees to receive shares of the Company’s Class B common stock. On January 5, 2022, the third and final vesting date under the program, the Company issued shares of its Class B common stock in respect of DSUs that vested on that date.
Stock Option and Incentive Plan—Other
On December 14, 2022, the Company’s stockholders approved an amendment to the Company’s 2015 Stock Option and Incentive Plan to increase the number of shares of the Company’s Class B common stock available for the grant of awards thereunder by an additional shares.
In
the nine months ended April 30, 2023, the Company received cash from the exercise of stock options of $
| 21 |
In the nine months ended April 30, 2023, the Company granted shares of its Class B common stock to an employee. The Company recorded stock-based compensation expense and an increase in “Additional paid-in capital” of $ million for this grant, which was the fair value of the shares on the grant date. In addition, in the nine months ended April 30, 2023, the Company granted restricted shares of its Class B common stock to an executive officer. The Company estimated that the grant date fair value of the shares was $ million, which is being recognized on a straight-line basis over the remaining vesting period that ends in .
Stock Repurchases
The
Company has an existing stock repurchase program authorized by its Board of Directors for the repurchase of shares of the Company’s
Class B common stock. The Board of Directors authorized the repurchase of up to million shares in the aggregate. In the nine months
ended April 30, 2023, the Company repurchased shares of its Class B common stock for an aggregate purchase price of $
In
the nine months ended April 30, 2023 and 2022, the Company paid $
Note 13—Redeemable Noncontrolling Interest
On
September 29, 2021, NRS sold shares of its Class B common stock representing
The shares of NRS’ Class B common stock sold to Alta Fox have been classified as mezzanine equity in the accompanying consolidated balance sheets because they may be redeemed at the option of Alta Fox, although the shares are not mandatorily redeemable. The carrying amount of the shares includes the noncontrolling interest in the net income of NRS. The net income attributable to the mezzanine equity’s noncontrolling interest during the periods were as follows:
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net income of NRS attributable to the mezzanine equity’s noncontrolling interest | $ | $ | $ | $ | ||||||||||||
Basic earnings per share is computed by dividing net income attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings per share is computed in the same manner as basic earnings per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase is anti-dilutive.
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Basic weighted-average number of shares | ||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||
| Stock options | ||||||||||||||||
| Non-vested restricted Class B common stock | ||||||||||||||||
| Diluted weighted-average number of shares | ||||||||||||||||
There were shares or options excluded from the calculation of diluted earnings per share in the three and nine months ended April 30, 2023 and 2022.
| 22 |
Note 15—Accumulated Other Comprehensive Loss
The accumulated balances for each classification of other comprehensive income (loss) were as follows:
Unrealized Loss on Available-for-Sale Securities | Foreign Currency Translation | Accumulated Other Comprehensive Loss | ||||||||||
| (in thousands) | ||||||||||||
| Balance, July 31, 2022 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive income (loss) attributable to IDT Corporation | ( | ) | ( | ) | ||||||||
| Balance, April 30, 2023 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Note 16—Commitments and Contingencies
COVID-19
In May 2023, the World Health Organization declared an end to COVID-19 as a public health emergency. As of the date of this Quarterly Report, the Company continues to monitor the situation. The Company cannot predict with certainty the potential impact of COVID-19 if it re-invigorates on the Company’s results of operations, financial condition, or cash flows.
Legal Proceedings
On July 5, 2017, plaintiff JDS1, LLC, on behalf of itself and all other similarly situated stockholders of Straight Path, and derivatively on behalf of Straight Path as nominal defendant, filed a putative class action and derivative complaint in the Court of Chancery of the State of Delaware against the Company, The Patrick Henry Trust (a trust formed by Howard S. Jonas that held record and beneficial ownership of certain shares of Straight Path he formerly held), Howard S. Jonas, and each of Straight Path’s directors. The complaint alleges that the Company aided and abetted Straight Path Chairman of the Board and Chief Executive Officer Davidi Jonas, and Howard S. Jonas in his capacity as controlling stockholder of Straight Path, in breaching their fiduciary duties to Straight Path in connection with the settlement of claims between Straight Path and the Company related to potential indemnification claims concerning Straight Path’s obligations under the Consent Decree it entered into with the Federal Communications Commission (“FCC”), as well as the sale of Straight Path’s subsidiary Straight Path IP Group, Inc. to the Company in connection with that settlement. That action was consolidated with a similar action that was initiated by The Arbitrage Fund. The Plaintiffs are seeking, among other things, (i) a declaration that the action may be maintained as a class action or in the alternative, that demand on the Straight Path Board is excused; (ii) that the term sheet is invalid; (iii) awarding damages for the unfair price stockholders received in the merger between Straight Path and Verizon Communications Inc. for their shares of Straight Path’s Class B common stock; and (iv) ordering Howard S. Jonas, Davidi Jonas, and the Company to disgorge any profits for the benefit of the class Plaintiffs. On August 28, 2017, the Plaintiffs filed an amended complaint. On September 24, 2017, the Company filed a motion to dismiss the amended complaint, which was ultimately denied, and which denial was affirmed by the Delaware Supreme Court. On February 17, 2022, the court denied the Company’s motion for summary judgment. On March 10, 2022, JDS1, LLC withdrew its application to serve as class representative and lead plaintiff. On May 16, 2022, the court denied The Arbitrage Fund’s motion to serve as class representative and lead plaintiff, and approved intervenor Ardell Howard’s motion to serve as class representative. The trial commenced on August 29, 2022 for a period of five days, followed by another five-day period in December 2022. The court held closing arguments on May 3, 2023. The Company is vigorously defending this matter (see Note 10). At this stage, the Company is unable to estimate its potential liability, if any.
| 23 |
In addition to the foregoing, the Company is subject to other legal proceedings that have arisen in the ordinary course of business and have not been finally adjudicated. Although there can be no assurance in this regard, the Company believes that none of the other legal proceedings to which the Company is a party will have a material adverse effect on the Company’s results of operations, cash flows or financial condition.
Sales Tax Contingency
On June 21, 2018, the United States Supreme Court rendered a decision in South Dakota v. Wayfair, Inc., holding that a state may require a remote seller with no physical presence in the state to collect and remit sales tax on goods and services provided to purchasers in the state, overturning certain existing court precedent. It is possible that one or more jurisdictions may assert that the Company has liability for periods for which it has not collected sales, use or other similar taxes, and if such an assertion or assertions were successful it could materially and adversely affect the Company’s business, financial position, and operating results. One or more jurisdictions may change their laws or policies to apply their sales, use or other similar taxes to the Company’s operations, and if such changes were made it could materially and adversely affect the Company’s business, financial position, and operating results.
Regulatory Fees Audit
The Company’s 2017 FCC Form 499-A, which reports its calendar year 2016 revenue, was audited by the Universal Service Administrative
Company (“USAC”). The Internal Audit Division of USAC issued preliminary audit findings and the Company, in accordance with
USAC’s audit procedures, appealed certain of the findings. USAC issued a final decision, and the final decision overturned one
of the initial findings but left the remaining initial findings in place. The reversal will result in the elimination of a $
Purchase Commitments
At
April 30, 2023, the Company had purchase commitments of $
Performance Bonds
The
Company has performance bonds issued through third parties for the benefit of various states in order to comply with the states’
financial requirements for money remittance licenses and telecommunications resellers. At April 30, 2023, the Company had aggregate performance
bonds of $
Note 17—Other Expense, Net
Other expense, net consists of the following:
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Foreign currency transaction gains (losses) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Equity in net loss of investee | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Losses on investments, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense, net | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 24 |
Note 18—Income Taxes
At
April 30, 2023, the Company’s best estimate of the effective tax rate expected to be applicable for fiscal 2023 was
Note 19—Defined Contribution Plan
The
Company maintains a 401(k) Plan available to all employees meeting certain eligibility criteria. The plan permits participants to contribute
up to the maximum amount allowed by law. The plan provides for discretionary matching contributions that vest over the first five years
of employment. The plan permits the discretionary matching contributions to be granted as of December 31 of each year. All contributions
made by participants vest immediately into the participant’s account. In April 2023, the Company contributed cash of $
Note 20—Recently Issued Accounting Standards Not Yet Adopted
In June 2022, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) No. 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, that clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU also requires specific disclosures related to equity securities that are subject to contractual sales restrictions. The Company will adopt the amendments in this ASU prospectively on August 1, 2024. The Company is evaluating the impact that this ASU will have on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking current expected credit loss model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized cost of the securities. In addition, an entity will have to disclose significantly more information about allowances, credit quality indicators, and past due securities. The new provisions will be applied as a cumulative-effect adjustment to retained earnings. The Company will adopt the new standard on August 1, 2023. The Company does not expect the new standard to have a material impact on its consolidated financial statements.
| 25 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following information should be read in conjunction with the accompanying consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2022, as filed with the U.S. Securities and Exchange Commission (or SEC).
As used below, unless the context otherwise requires, the terms “the Company,” “IDT,” “we,” “us,” and “our” refer to IDT Corporation, a Delaware corporation, its predecessor, International Discount Telecommunications, Corp., a New York corporation, and their subsidiaries, collectively.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words “believes,” “anticipates,” “expects,” “plans,” “intends,” and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks, and uncertainties that could result in those differences include, but are not limited to, those discussed under Item 1A to Part I “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended July 31, 2022. The forward-looking statements are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the SEC pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our Annual Report on Form 10-K for the fiscal year ended July 31, 2022.
Recently Issued Accounting Standards Not Yet Adopted
In June 2022, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, that clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU also requires specific disclosures related to equity securities that are subject to contractual sales restrictions. We will adopt the amendments in this ASU prospectively on August 1, 2024. We are evaluating the impact that this ASU will have on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking current expected credit loss model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized cost of the securities. In addition, an entity will have to disclose significantly more information about allowances, credit quality indicators, and past due securities. The new provisions will be applied as a cumulative-effect adjustment to retained earnings. We will adopt the new standard on August 1, 2023. We do not expect the new standard to have a material impact on our consolidated financial statements.
| 26 |
Results of Operations
We evaluate the performance of our business segments based primarily on income (loss) from operations. Accordingly, the income and expense line items below income (loss) from operations are only included in our discussion of the consolidated results of operations.
COVID-19
In May 2023, the World Health Organization declared an end to COVID-19 as a public health emergency. As of the date of this Quarterly Report, we continue to monitor the situation. We cannot predict with certainty the potential impact of COVID-19 if it re-invigorates on our results of operations, financial condition, or cash flows.
Explanation of Performance Metrics
Our results of operations discussion include the following performance metrics:
| ● | for National Retail Solutions, or NRS, active point of sale, or POS, terminals, payment processing accounts, and recurring revenue, | |
| ● | for net2phone, seats and subscription revenue, and | |
| ● | for Traditional Communications, minutes of use. |
NRS uses two key metrics, among others, to measure the size of its customer base: active POS terminals and payment processing accounts. Active POS terminals are the number of POS terminals that have completed at least one transaction in the calendar month. It excludes POS terminals that are being installed. Payment processing accounts are NRS PAY accounts that can generate revenue. It excludes accounts that have been approved but not activated. NRS’ recurring revenue is NRS’ revenue in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, excluding its revenue from POS terminal sales.
net2phone’s cloud communications offerings are priced on a per-seat basis, with customers paying based on the number of users in their organization. net2phone’s subscription revenue is its revenue in accordance with U.S. GAAP excluding its equipment revenue and revenue generated by a legacy SIP trunking offering in Brazil.
The trends and comparisons between periods for the number of active POS terminals, NRS PAY accounts, seats served, recurring revenue, and subscription revenue are used in the analysis of NRS’ or net2phone’s revenues and direct cost of revenues and are strong indications of the top-line growth and performance of the business.
Minutes of use is a nonfinancial metric that measures aggregate customer usage during a reporting period. Minutes of use is an important factor in BOSS Revolution Calling’s and IDT Global’s revenue recognition since satisfaction of our performance obligation occurs when the customer uses our service. Minutes of use trends and comparisons between periods are used in the analysis of revenues and direct cost of revenues.
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Three and Nine Months Ended April 30, 2023 Compared to Three and Nine Months Ended April 30, 2022
As of August 1, 2022, we revised our reportable business segments primarily to reflect the growth of our financial technology businesses and their increased contributions to our consolidated results. Our four reportable business segments, Fintech, NRS, net2phone, and Traditional Communications, reflect management’s current approach to analyzing results, its resource allocation strategy, and its assessment of business performance. NRS was previously included in our Fintech segment. In addition, certain lines of business were reclassified to the Fintech segment from the Traditional Communications segment. Comparative segment information has been reclassified and restated in all periods to conform to the current period presentation.
Fintech Segment
Fintech, which represented 7.3% and 5.2% of our total revenues in the three months ended April 30, 2023 and 2022, respectively, and 6.6% and 4.4% of our total revenues in the nine months ended April 30, 2023 and 2022, respectively, is comprised of BOSS Money, a provider of international money remittance and related value/payment transfer services, as well as other, significantly smaller, financial services businesses, including Leaf Global Fintech Corporation, or Leaf, a provider of digital wallet services in emerging markets, a variable interest entity, or VIE, that operates money transfer businesses, and IDT Financial Services Limited, or IDT Financial Services, our Gibraltar-based bank.
Three
months ended | Change | Nine
months ended | Change | |||||||||||||||||||||||||||||
2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| BOSS Money | $ | 19.5 | $ | 15.1 | $ | 4.4 | 28.9 | % | $ | 54.6 | $ | 39.2 | $ | 15.4 | 39.4 | % | ||||||||||||||||
| Other | 2.3 | 2.1 | 0.2 | 10.1 | 7.4 | 6.8 | 0.6 | 7.5 | ||||||||||||||||||||||||
| Total revenues | 21.8 | 17.2 | 4.6 | 26.6 | 62.0 | 46.0 | 16.0 | 34.6 | ||||||||||||||||||||||||
| Direct cost of revenues | (9.2 | ) | (6.6 | ) | 2.6 | 39.8 | (25.5 | ) | (18.6 | ) | 6.9 | 36.6 | ||||||||||||||||||||
| Selling, general and administrative | (13.2 | ) | (11.1 | ) | 2.1 | 18.0 | (37.0 | ) | (30.7 | ) | 6.3 | 20.8 | ||||||||||||||||||||
| Depreciation and amortization | (0.7 | ) | (0.6 | ) | 0.1 | 23.0 | (2.0 | ) | (1.6 | ) | 0.4 | 22.8 | ||||||||||||||||||||
| Severance | — | — | — | — | — | (0.1 | ) | (0.1 | ) | (100.0 | ) | |||||||||||||||||||||
| Other operating gains | — | — | — | — | 1.9 | — | (1.9 | ) | nm | |||||||||||||||||||||||
| Loss from operations | $ | (1.3 | ) | $ | (1.1 | ) | $ | (0.2 | ) | (18.5 | )% | $ | (0.6 | ) | $ | (5.0 | ) | $ | 4.4 | 87.7 | % | |||||||||||
| nm—not meaningful |
Revenues. Revenues from BOSS Money increased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 primarily because of increased transaction volume in BOSS Money’s direct-to-consumer digital and retail channels in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022, as well as the development and introduction of new platform functionalities enabling more flexible and granular pricing strategies. BOSS Money continues to benefit from the expansion of its disbursement networks, particularly in Africa and the Caribbean.
Direct Cost of Revenues. Direct cost of revenues increased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 primarily due to increased direct cost of revenues in BOSS Money’s direct-to-consumer digital and retail channels, which reflected the increase in BOSS Money’s revenue.
Selling, General and Administrative. Selling, general and administrative expense increased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 primarily due to increases in debit and credit card processing charges, employee compensation, and marketing expenses. The increase in card processing charges was the result of increased credit and debit card transactions through our BOSS Money app and other digital channels. As a percentage of Fintech’s revenue, Fintech’s selling, general and administrative expense decreased to 60.5% from 64.9% in the three months ended April 30, 2023 and 2022, respectively, and decreased to 59.8% from 66.6% in the nine months ended April 30, 2023 and 2022, respectively.
Depreciation and Amortization. Depreciation and amortization expense increased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 primarily due to increased depreciation of capitalized costs of consultants and employees developing internal use software.
| 28 |
Other Operating Gains. In the three months ended April 30, 2023 and 2022, Leaf received payments of nil and $13,000, respectively, and in the nine months ended April 30, 2023 and 2022, Leaf received payments of $0.3 million and $13,000, respectively, from government grants for the development and commercialization of blockchain-backed financial technologies. In addition, in the nine months ended April 30, 2023, we determined that the requirements for a portion of the contingent consideration payments related to the Leaf acquisition would not be met. We recognized a gain of $1.6 million on the write-off of this contingent consideration payment obligation.
National Retail Solutions Segment
NRS, which represented 6.0% and 3.5% of our total revenues in the three months ended April 30, 2023 and 2022, respectively, and 6.1% and 3.1% of our total revenues in the nine months ended April 30, 2023 and 2022, respectively, is an operator of a nationwide POS network providing independent retailers with store management software, electronic payment processing, and other ancillary merchant services. NRS’ POS platform provides marketers with digital out-of-home advertising and transaction data.
| Three months ended April 30, | Change | Nine months ended April 30, | Change | |||||||||||||||||||||||||||||
| 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Recurring | $ | 16.5 | $ | 10.0 | $ | 6.5 | 65.4 | % | $ | 52.6 | $ | 27.6 | $ | 25.0 | 90.8 | % | ||||||||||||||||
| Other | 1.6 | 1.4 | 0.2 | 12.2 | 4.6 | 4.5 | 0.1 | 2.0 | ||||||||||||||||||||||||
| Total revenues | 18.1 | 11.4 | 6.7 | 58.8 | 57.2 | 32.1 | 25.1 | 78.4 | ||||||||||||||||||||||||
| Direct cost of revenues | (2.6 | ) | (1.7 | ) | 0.9 | 51.1 | (6.8 | ) | (4.4 | ) | 2.4 | 53.4 | ||||||||||||||||||||
| Selling, general and administrative | (12.8 | ) | (8.4 | ) | 4.4 | 52.5 | (36.0 | ) | (22.6 | ) | 13.4 | 59.4 | ||||||||||||||||||||
| Depreciation and amortization | (0.6 | ) | (0.2 | ) | 0.4 | 197.4 | (1.7 | ) | (0.6 | ) | 1.1 | 206.5 | ||||||||||||||||||||
| Income from operations | $ | 2.1 | $ | 1.1 | $ | 1.0 | 92.9 | % | $ | 12.7 | $ | 4.5 | $ | 8.2 | 182.9 | % | ||||||||||||||||
April 30, | Change | |||||||||||||||
2023 | 2022 | # | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Active POS terminals | 23.9 | 17.9 | 6.0 | 34 | % | |||||||||||
| Payment processing accounts | 14.1 | 9.2 | 4.9 | 53 | % | |||||||||||
Revenues. Revenues increased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 driven primarily by revenue growth from NRS’ merchant services and advertising and data, as well as the expansion of NRS’ POS network.
Direct Cost of Revenues. Direct cost of revenues increased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 primarily due to increases in the direct costs of NRS’ POS terminal sales.
Selling, General and Administrative. Selling, general and administrative expense increased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 primarily due to increases in sales commissions, as well as increases in employee compensation. As a percentage of NRS’ revenue, NRS’ selling, general and administrative expense decreased to 70.6% from 73.5% in the three months ended April 30, 2023 and 2022, respectively, and decreased to 63.0% from 70.5% in the nine months ended April 30, 2023 and 2022, respectively.
Depreciation and Amortization. Depreciation and amortization expense increased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 primarily due to increased depreciation of capitalized costs of consultants and employees developing internal use software.
net2phone Segment
The net2phone segment, which represented 6.2% and 4.7% of our total revenues in the three months ended April 30, 2023 and 2022, respectively, and 5.7% and 4.1% of our total revenues in the nine months ended April 30, 2023 and 2022, respectively, is comprised of net2phone’s cloud communications offerings.
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| Three months ended April 30, | Change | Nine months ended April 30, | Change | |||||||||||||||||||||||||||||
| 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Subscription | $ | 17.1 | $ | 14.2 | $ | 2.9 | 20.1 | % | $ | 49.0 | $ | 38.5 | $ | 10.5 | 27.2 | % | ||||||||||||||||
| Other | 1.3 | 1.4 | (0.1 | ) | (2.0 | ) | 4.1 | 3.5 | 0.6 | 18.7 | ||||||||||||||||||||||
| Total revenues | 18.4 | 15.6 | 2.8 | 18.2 | 53.1 | 42.0 | 11.1 | 26.5 | ||||||||||||||||||||||||
| Direct cost of revenues | (3.0 | ) | (2.7 | ) | 0.3 | 13.7 | (8.9 | ) | (7.5 | ) | 1.4 | 18.3 | ||||||||||||||||||||
| Selling, general and administrative | (14.4 | ) | (13.8 | ) | 0.6 | 3.9 | (42.1 | ) | (40.2 | ) | 1.9 | 4.8 | ||||||||||||||||||||
| Depreciation and amortization | (1.4 | ) | (1.4 | ) | — | 4.3 | (4.1 | ) | (3.9 | ) | 0.2 | 5.4 | ||||||||||||||||||||
| Other operating gain, net | — | — | — | — | — | 0.3 | (0.3 | ) | (100.0 | ) | ||||||||||||||||||||||
| Loss from operations | $ | (0.4 | ) | $ | (2.3 | ) | $ | 1.9 | 83.3 | % | $ | (2.0 | ) | $ | (9.3 | ) | $ | 7.3 | 78.4 | % | ||||||||||||
April 30, | Change | |||||||||||||||
2023 | 2022 | # | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Seats served | 340 | 279 | 61 | 22 | % | |||||||||||
Revenues. net2phone’s revenues increased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 driven primarily by the growth in subscription revenue in the U.S. and Latin American markets, which reflects the increase in seats served at April 30, 2023 compared to April 30, 2022 in those markets.
Direct Cost of Revenues. Direct cost of revenues increased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 primarily due to the increase in revenues, with the largest increases in the U.S. market. net2phone’s focus on mid-sized businesses, multi-channel strategies, and localized offerings generated revenue growth that exceeded the increase in direct cost of revenues.
Selling, General and Administrative. Selling, general and administrative expense increased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 primarily due to increases in sales commissions. As a percentage of net2phone’s revenues, net2phone’s selling, general and administrative expenses decreased to 78.1% from 88.8% in the three months ended April 30, 2023 and 2022, respectively, and decreased to 79.3% from 95.6% in the nine months ended April 30, 2023 and 2022, respectively.
net2phone derives a significant portion of its revenues from existing customers. Attracting new customers usually involves additional costs compared to retention of existing customers. If existing customers’ subscriptions and related usage decrease or are terminated, net2phone will need to spend more money to acquire new customers and still may not be able to maintain its existing level of revenues or profitability. In addition, net2phone needs to acquire new customers to increase its revenues. net2phone incurs significant sales and marketing expenses to acquire new customers. It is therefore expected that selling, general and administrative expenses will remain a significant percentage of net2phone’s revenues for the foreseeable future.
Depreciation and Amortization. Depreciation and amortization expense was substantially unchanged in the three months ended April 30, 2023 compared to the similar period in fiscal 2022. The increase in depreciation and amortization expense in the nine months ended April 30, 2023 compared to the similar period in fiscal 2022 was due to increased depreciation of net2phone’s telephone equipment leased to customers and increased depreciation of capitalized costs of consultants and employees developing internal use software.
Other Operating Gain, net. In the nine months ended April 30, 2022, we determined that the requirements for a contingent consideration payment related to an acquisition in December 2019 would not be met before the expiration date. net2phone recognized a gain of $0.3 million in the nine months ended April 30, 2022 on the write-off of this contingent consideration payment obligation.
Traditional Communications Segment
The Traditional Communications segment, which represented 80.5% and 86.6% of our total revenues in the three months ended April 30, 2023 and 2022, respectively, and 81.6% and 88.4% of our total revenues in the nine months ended April 30, 2023 and 2022, respectively, includes IDT Digital Payments (formerly Mobile Top-Up), which enables customers to transfer airtime and bundles of airtime, messaging, and data to international and domestic mobile accounts, BOSS Revolution Calling, an international long-distance calling service marketed primarily to immigrant communities in the United States and Canada, and IDT Global, a wholesale provider of international voice and SMS termination and outsourced traffic management solutions to telecoms worldwide. Traditional Communications also includes other small businesses and offerings including early-stage business initiatives and mature businesses in harvest mode.
| 30 |
Traditional Communications’ most significant revenue streams are from IDT Digital Payments, BOSS Revolution Calling, and IDT Global. IDT Digital Payments and BOSS Revolution Calling are sold direct-to-consumers and through distributors and retailers. We receive payments for BOSS Revolution Calling, traditional calling cards, and IDT Digital Payments prior to providing the services. We recognize the revenue when services are provided to the customer. Traditional Communications’ revenues tend to be somewhat seasonal, with the second fiscal quarter (which contains Christmas and New Year’s Day) and the fourth fiscal quarter (which contains Mother’s Day and Father’s Day) typically showing higher minute volumes.
Three
months ended | Change | Nine
months ended | Change | |||||||||||||||||||||||||||||
2023 | 2022 | $/# | % | 2023 | 2022 | $/# | % | |||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| IDT Digital Payments | $ | 101.0 | $ | 115.9 | $ | (14.9 | ) | (12.8 | )% | $ | 316.2 | $ | 360.6 | $ | (44.4 | ) | (12.3 | )% | ||||||||||||||
| BOSS Revolution Calling | 77.6 | 91.8 | (14.2 | ) | (15.4 | ) | 246.7 | 297.7 | (51.0 | ) | (17.1 | ) | ||||||||||||||||||||
| IDT Global | 54.5 | 67.1 | (12.6 | ) | (18.8 | ) | 174.7 | 229.4 | (54.7 | ) | (23.8 | ) | ||||||||||||||||||||
| Other | 7.9 | 9.4 | (1.5 | ) | (16.7 | ) | 25.1 | 27.7 | (2.6 | ) | (9.5 | ) | ||||||||||||||||||||
| Total revenues | 241.0 | 284.2 | (43.2 | ) | (15.2 | ) | 762.7 | 915.4 | (152.7 | ) | (16.7 | ) | ||||||||||||||||||||
| Direct cost of revenues | (195.4 | ) | (236.6 | ) | (41.2 | ) | (17.4 | ) | (623.1 | ) | (765.9 | ) | (142.8 | ) | (18.6 | ) | ||||||||||||||||
| Selling, general and administrative | (26.0 | ) | (27.6 | ) | (1.6 | ) | (6.0 | ) | (80.7 | ) | (84.4 | ) | (3.7 | ) | (4.4 | ) | ||||||||||||||||
| Depreciation and amortization | (2.5 | ) | (2.4 | ) | 0.1 | 4.0 | (7.1 | ) | (7.2 | ) | (0.1 | ) | (0.6 | ) | ||||||||||||||||||
| Severance | (0.1 | ) | — | 0.1 | nm | (0.5 | ) | — | 0.5 | nm | ||||||||||||||||||||||
| Other operating expense | (4.1 | ) | — | 4.1 | nm | (4.1 | ) | (0.1 | ) | 4.0 | nm | |||||||||||||||||||||
| Income from operations | $ | 12.9 | $ | 17.6 | $ | (4.7 | ) | (26.5 | )% | $ | 47.2 | $ | 57.8 | $ | (10.6 | ) | (18.4 | )% | ||||||||||||||
| Minutes of use: | ||||||||||||||||||||||||||||||||
| BOSS Revolution Calling | 549 | 690 | (141 | ) | (20.4 | )% | 1,766 | 2,252 | (486 | ) | (21.6 | )% | ||||||||||||||||||||
| IDT Global | 1,428 | 1,864 | (436 | ) | (23.4 | ) | 4,739 | 5,882 | (1,143 | ) | (19.4 | ) | ||||||||||||||||||||
| nm—not meaningful |
Revenues. Revenues from IDT Digital Payments decreased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 primarily from the deterioration of a key corridor that was particularly impactful to revenues in the business-to-business wholesale and retail channels.
Revenues and minutes of use from BOSS Revolution Calling decreased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022. BOSS Revolution Calling continues to be impacted by persistent, market-wide trends, including the proliferation of unlimited calling plans offered by wireless carriers and mobile virtual network operators, and the increasing penetration of free and paid over-the-top voice, video conferencing, and messaging services.
Revenues and minutes of use from IDT Global decreased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 as communications globally continued to transition away from international voice calling. This trend was accelerated by the impact of COVID-19 as business communications shifted from calling to video conferencing and other collaboration platforms. We expect that IDT Global will continue to be adversely impacted by these trends, and minutes of use and revenues will likely continue to decline from quarter-to-quarter, as we seek to maximize economics rather than necessarily sustain minutes of use or revenues.
Direct Cost of Revenues. Direct cost of revenues decreased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 primarily due to decreases in IDT Global, IDT Digital Payments, and BOSS Revolution Calling’s direct cost of revenues in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022, mostly due to the decrease in revenues.
Selling, General and Administrative. Selling, general and administrative expense decreased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 primarily due to decreases in debit and credit card processing charges, employee compensation, and sales commissions, partially offset by increases in marketing expense and stock-based compensation expense. As a percentage of Traditional Communications’ revenue, Traditional Communications’ selling, general and administrative expense increased to 10.8% from 9.7% in the three months ended April 30, 2023 and 2022, respectively, and increased to 10.6% from 9.2% in the nine months ended April 30, 2023 and 2022, respectively.
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Depreciation and Amortization. Depreciation and amortization expense increased in the three months ended April 30, 2023 compared to the similar period in fiscal 2022 primarily due to increases in depreciation of equipment added to our telecommunications network and capitalized costs of consultants and employees developing internal use software. Depreciation and amortization expense decreased in the nine months ended April 30, 2023 compared to the similar period in fiscal 2022 primarily due to decreases in depreciation as more of our property, plant, and equipment became fully depreciated, partially offset by increases in depreciation of equipment added to our telecommunications network and capitalized costs of consultants and employees developing internal use software.
Other Operating Expense. Other operating expense included $3.9 million and $33,000 in the three months ended April 30, 2023 and 2022, respectively, and $3.9 million and $0.1 million in the nine months ended April 30, 2023 and 2022, respectively, for the indemnification of one of our cable telephony customers related to patent infringement claims brought against the customer. On May 8, 2023, we and the customer agreed to a release from the indemnification agreement in exchange for $3.9 million, of which $1.9 million was paid on May 10, 2023, and the remainder will be paid in five monthly invoice deductions of $0.4 million each. Also, in the three and nine months ended April 30, 2023, we increased the estimated fair value of acquisition-related contingent consideration by $0.2 million.
Corporate
Three months ended April 30, | Change | Nine months ended April 30, | Change | |||||||||||||||||||||||||||||
2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| General and administrative | $ | (2.3 | ) | $ | (1.8 | ) | $ | 0.5 | 28.7 | % | $ | (6.7 | ) | $ | (6.1 | ) | $ | 0.6 | 10.0 | % | ||||||||||||
| Other operating expense, net | (0.6 | ) | (0.2 | ) | 0.4 | 301.6 | (1.8 | ) | (1.0 | ) | 0.8 | 86.5 | ||||||||||||||||||||
| Loss from operations | $ | (2.9 | ) | $ | (2.0 | ) | $ | 0.9 | 49.5 | % | $ | (8.5 | ) | $ | (7.1 | ) | $ | 1.4 | 19.8 | % | ||||||||||||
Corporate costs mainly include compensation, consulting fees, treasury, tax and accounting services, human resources, corporate purchasing, corporate governance including Board of Directors’ fees, internal and external audit, investor relations, corporate insurance, corporate legal, and other corporate-related general and administrative expenses. Corporate does not generate any revenues, nor does it incur any direct cost of revenues.
General and Administrative. Corporate general and administrative expense increased in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 primarily because of increases in employee compensation and stock-based compensation expense. As a percentage of our consolidated revenues, Corporate general and administrative expense was 0.8% and 0.5% in the three months ended April 30, 2023 and 2022, respectively, and 0.7% and 0.6% in the nine months ended April 30, 2023 and 2022, respectively.
Other Operating Expense, net. As discussed in Note 16 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report, we (as well as other defendants) have been named in a pending class action on behalf of the stockholders of our former subsidiary, Straight Path Communications Inc., or Straight Path. We incurred legal fees of $1.0 million and $1.4 million in the three months ended April 30, 2023 and 2022, respectively, and $5.1 million in both the nine months ended April 30, 2023 and 2022 related to this action. Also, we recorded offsetting gains from insurance claims for this matter of $0.4 million and $1.2 million in the three months ended April 30, 2023 and 2022, respectively, and $3.3 million and $4.1 million in the nine months ended April 30, 2023 and 2022, respectively.
Consolidated
The following is a discussion of certain of our consolidated expenses, and our consolidated income and expense line items below income from operations.
Related Party Lease Costs. We lease office and parking space in a building and parking garage located at 520 Broad Street, Newark, New Jersey that was previously owned by our former subsidiary, Rafael Holdings, Inc., or Rafael. On August 22, 2022, Rafael sold the building and parking garage to an unrelated third party. Our lease in that building continues with the new owner. We lease office space in Israel from Rafael. The Newark lease expires in April 2025 and the Israel lease expires in July 2025. In the three and nine months ended April 30, 2023, we incurred lease costs of $33,000 and $0.2 million, respectively, in connection with the Rafael leases, which excludes Newark lease costs after August 22, 2022. In the three and nine months ended April 30, 2022, we incurred lease costs of $0.5 million and $1.4 million, respectively, in connection with the Rafael leases. Lease costs incurred in connection with the Rafael leases are included in consolidated selling, general and administrative expenses.
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Stock-Based Compensation Expense. Stock-based compensation expense included in consolidated selling, general and administrative expenses was $1.7 million and $1.2 million in the three months ended April 30, 2023 and 2022, respectively, and $3.5 million and $1.8 million in the nine months ended April 30, 2023 and 2022, respectively. The increases were primarily due to the grant of deferred stock units, or DSUs, that, upon vesting, will entitle the grantees to receive shares of our Class B common stock. In the nine months ended April 30, 2023, we granted an aggregate of 193,225 DSUs to certain of our executive officers and other employees. The number of shares that will be issuable on each vesting date will vary between 50% to 200% of the number of DSUs that vest on that vesting date, depending on the market price for the underlying Class B common stock on the vesting date relative to the base price approved by the Compensation Committee of our Board of Directors of $25.45 per share (which was based on the market price at the time of the initial grants under this program). On May 17, 2023, the first vesting date under the program, in accordance with the program and based on certain elections made by grantees, we issued 41,945 shares of our Class B common stock for vested DSUs. Based on those elections, vesting for 30,909 DSUs was delayed until February 21, 2024. Subject to continued full time employment or other service to us, the remaining DSUs are scheduled to vest on February 21, 2024 and February 25, 2025. The grantees will have the right to elect a later vesting date no later than January 19, 2024 for the February 21, 2024 vesting date. A grantee will have the option to elect a later vesting date for one-half or all of the shares scheduled to vest on February 21, 2024 and any DSUs that do not vest based on the grantee’s election, will be eligible to vest on February 25, 2025. We estimated that the fair value of the DSUs on the date of grants was an aggregate of $5.2 million, which is being recognized on a graded vesting basis over the requisite service periods ending in February 2025. We used a risk neutral Monte Carlo simulation method in our valuation of the DSUs, which simulated the range of possible future values of our Class B common stock over the life of the DSUs. The weighted average grant date fair value per DSU was $27.20. At April 30, 2023, there was $2.9 million of total unrecognized compensation cost related to non-vested DSUs.
Effective as of June 30, 2022, restricted shares of NRS’ Class B common stock were granted to certain NRS employees. The restrictions on the shares will lapse in three installments on each of June 1, 2024, 2026, and 2027. The estimated fair value of the restricted shares on the grant date was $3.3 million, which will be recognized over the vesting period. At April 30, 2023, unrecognized compensation cost related to NRS’ non-vested Class B common stock was an aggregate of $2.8 million. The unrecognized compensation cost is expected to be recognized over the remaining vesting period that end in fiscal 2027.
| Three months ended April 30, | Change | Nine months ended April 30, | Change | |||||||||||||||||||||||||||||
| 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Income from operations | $ | 10.4 | $ | 13.3 | $ | (2.9 | ) | (22.1 | )% | $ | 48.8 | $ | 40.9 | $ | 7.9 | 19.2 | % | |||||||||||||||
| Interest income, net | 0.7 | 0.1 | 0.6 | 734.1 | 2.0 | 0.2 | 1.8 | 835.0 | ||||||||||||||||||||||||
| Other expense, net | (0.4 | ) | (5.1 | ) | 4.7 | 92.5 | (2.6 | ) | (24.2 | ) | 21.6 | 89.2 | ||||||||||||||||||||
| Provision for income taxes | (3.0 | ) | (3.2 | ) | 0.2 | 8.6 | (12.6 | ) | (5.9 | ) | (6.7 | ) | (113.9 | ) | ||||||||||||||||||
| Net income | 7.7 | 5.1 | 2.6 | 51.7 | 35.6 | 11.0 | 24.6 | 223.2 | ||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | (0.8 | ) | (0.3 | ) | (0.5 | ) | (154.9 | ) | (3.1 | ) | (1.2 | ) | (1.9 | ) | (151.3 | ) | ||||||||||||||||
| Net income attributable to IDT Corporation | $ | 6.9 | $ | 4.8 | $ | 2.1 | 44.4 | % | $ | 32.5 | $ | 9.8 | $ | 22.7 | 232.3 | % | ||||||||||||||||
Other Expense, net. Other expense, net consists of the following:
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in millions) | ||||||||||||||||
| Foreign currency transaction gains (losses) | $ | 0.9 | $ | (0.9 | ) | $ | 2.3 | $ | (0.2 | ) | ||||||
| Equity in the net loss of investee | (0.8 | ) | (0.8 | ) | (2.1 | ) | (2.2 | ) | ||||||||
| Losses on investments, net | (0.5 | ) | (3.4 | ) | (2.6 | ) | (20.9 | ) | ||||||||
| Other | — | — | (0.2 | ) | (0.9 | ) | ||||||||||
| Total other expense, net | $ | (0.4 | ) | $ | (5.1 | ) | $ | (2.6 | ) | $ | (24.2 | ) | ||||
We have an investment in convertible preferred stock of a communications company (the equity method investee, or EMI), that represented 26.57% of the outstanding shares of the EMI on an as converted basis. On April 6, 2023, in accordance with an Agreement and Plan of Merger dated as of April 5, 2023, the EMI merged with and into its subsidiary, with the subsidiary being the surviving corporation. Each of the EMI’s shareholders agreed to purchase additional shares of the EMI’s convertible preferred stock through May 31, 2023. Following the merger, the conversion of our notes receivable into EMI shares described below, and the purchases of the additional EMI’s shares, our ownership interest increased to 33.3% of the EMI’s outstanding shares. We account for this investment using the equity method since we can exercise significant influence over the operating and financial policies of the EMI but we do not have a controlling interest.
The losses on investments, net in the three and nine months ended April 30, 2023 included unrealized gains of $11,000 and $20,000, respectively, and in the three and nine months ended April 30, 2022 included unrealized losses of $0.6 million and $14.1 million, respectively, on shares of Rafael’s Class B common stock.
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Provision for Income Taxes. The change in income tax expense in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 was primarily due to differences in the amount of taxable income earned in the various taxing jurisdictions.
Net Income Attributable to Noncontrolling Interests. The change in the net income attributable to noncontrolling interests in the three and nine months ended April 30, 2023 compared to the similar periods in fiscal 2022 was primarily due to increases in the net income of NRS as well as a reductions in the net loss of net2phone 2.0, Inc. and certain other subsidiaries.
Liquidity and Capital Resources
As of the date of this Quarterly Report, we expect our cash from operations and the balance of cash, cash equivalents, debt securities, and current equity investments that we held on April 30, 2023 will be sufficient to meet our currently anticipated working capital and capital expenditure requirements during the twelve-month period ending April 30, 2024.
At April 30, 2023, we had cash, cash equivalents, debt securities, and current equity investments of $138.5 million and working capital (current assets in excess of current liabilities) of $88.3 million.
We treat unrestricted cash and cash equivalents held by IDT Payment Services, Inc. and IDT Payment Services of New York, LLC as substantially restricted and unavailable for other purposes. At April 30, 2023, “Cash and cash equivalents” in our consolidated balance sheet included an aggregate of $16.9 million held by IDT Payment Services, Inc. and IDT Payment Services of New York, LLC that was unavailable for other purposes.
Contractual Obligations and Commitments
The following table includes our anticipated material cash requirements from contractual obligations and other commitments at April 30, 2023:
Payments Due by Period (in millions) | Total | Less
than 1 year | 1–3 years | 4–5 years | After 5 years | |||||||||||||||
| Purchase commitments | $ | 7.9 | $ | 7.9 | $ | — | $ | — | $ | — | ||||||||||
| Connectivity obligations under service agreements | 0.6 | 0.4 | 0.2 | — | — | |||||||||||||||
| Operating leases including short-term leases | 7.6 | 3.5 | 3.6 | 0.5 | — | |||||||||||||||
| Total (1) | $ | 16.1 | $ | 11.8 | $ | 3.8 | $ | 0.5 | $ | — | ||||||||||
| (1) | The above table does not include up to $10 million for the potential redemption of shares of NRS’ Class B common stock, an aggregate of $25.8 million in performance bonds, and up to $9.0 million for other potential payments including contingent consideration related to business acquisitions, due to the uncertainty of the amount and/or timing of any such payments. |
Consolidated Financial Condition
| Nine
months ended April 30, | ||||||||
| 2023 | 2022 | |||||||
| (in millions) | ||||||||
| Cash flows provided by (used in): | ||||||||
| Operating activities | $ | 28.7 | $ | 13.3 | ||||
| Investing activities | (26.0 | ) | (25.9 | ) | ||||
| Financing activities | (9.7 | ) | (2.1 | ) | ||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents | 2.5 | (14.1 | ) | |||||
| Decrease in cash, cash equivalents, and restricted cash and cash equivalents | $ | (4.5 | ) | $ | (28.8 | ) | ||
Operating Activities
Our cash flow from operations varies significantly from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable.
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Gross trade accounts receivable increased to $72.1 million at April 30, 2023 from $70.2 million at July 31, 2022 primarily due to billings in the nine months ended April 30, 2023 that were greater than amounts collected during the period.
Deferred revenue arises from sales of prepaid products and varies from period to period depending on the mix and the timing of revenues. Deferred revenue decreased to $33.9 million at April 30, 2023 from $36.5 million at July 31, 2022 primarily due to decreases in the BOSS Revolution Calling and IDT Digital Payments deferred revenue balances.
Customer deposit liabilities at IDT Financial Services increased to $86.1 million at April 30, 2023 from $85.8 million at July 31, 2022. Our restricted cash and cash equivalents included $86.9 million and $86.6 million at April 30, 2023 and July 31, 2022, respectively, held by IDT Financial Services.
On June 21, 2018, the United States Supreme Court rendered a decision in South Dakota v. Wayfair, Inc., holding that a state may require a remote seller with no physical presence in the state to collect and remit sales tax on goods and services provided to purchasers in the state, overturning certain existing court precedent. It is possible that one or more jurisdictions may assert that we have liability for periods for which we have not collected sales, use or other similar taxes, and if such an assertion or assertions were successful it could materially and adversely affect our business, financial position, and operating results. One or more jurisdictions may change their laws or policies to apply their sales, use or other similar taxes to our operations, and if such changes were made it could materially and adversely affect our business, financial position, and operating results.
As discussed in Note 16 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report, we (as well as other defendants) have been named in a pending class action on behalf of the stockholders of our former subsidiary, Straight Path. We are vigorously defending this matter. At this stage, we are unable to estimate our potential liability, if any.
Investing Activities
Our capital expenditures were $16.0 million and $13.8 million in the nine months ended April 30, 2023 and 2022, respectively. We currently anticipate that total capital expenditures in the twelve-month period ending April 30, 2024 will be $21 million to $22 million. We expect to fund our capital expenditures with our net cash provided by operating activities and cash, cash equivalents, debt securities, and current equity investments on hand.
On April 6, 2023, in accordance with an Agreement and Plan of Merger dated as of April 5, 2023, the EMI merged with and into its subsidiary, with the subsidiary being the surviving corporation. Effective with the merger, among other things, the notes receivable from the EMI that we held with an aggregate principal and accrued interest of $4.0 million were converted into shares of EMI Preferred Stock. In addition, each of the EMI’s shareholders agreed to purchase additional shares of EMI Preferred Stock, for which we paid $0.2 million in April 2023 and $0.7 million in May 2023 to purchase the additional shares. On August 10, 2021, we paid $1.1 million to purchase shares of the EMI’s Series C convertible preferred stock and additional shares of the EMI’s Series B convertible preferred stock.
On March 3, 2022, net2phone 2.0, Inc. purchased all of the outstanding shares of the owners of Integra CCS for cash of $7.1 million, net of cash acquired. We also recorded aggregate liabilities of $4.5 million for the estimated fair value of future payments including contingent consideration. The purchase price also included 27,765 shares of our Class B common stock with a value of $1.0 million that were issued at closing.
On March 1, 2022, our subsidiary, IDT International Telecom, Inc., purchased all of the outstanding shares of Leaf for cash of $0.3 million, net of cash acquired. We also recorded liabilities of $3.3 million for the estimated fair value of contingent consideration.
Purchases of debt securities and equity investments were $44.2 million and $11.3 million in the nine months ended April 30, 2023 and 2022, respectively. Proceeds from maturities and sales of debt securities and redemptions of equity investments were $34.3 million and $7.8 million in the nine months ended April 30, 2023 and 2022, respectively.
Financing Activities
We distributed cash of $0.3 million and $0.4 million in the nine months ended April 30, 2023 and 2022, respectively, to the noncontrolling interests in certain of our subsidiaries.
In the nine months ended April 30, 2023 and 2022, we received proceeds from financing-related other liabilities of $0.3 million and $2.3 million, respectively.
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In the nine months ended April 30, 2023 and 2022, we repaid financing-related other liabilities of $2.0 million and $1.3 million, respectively.
Our subsidiary, IDT Telecom, Inc., or IDT Telecom, entered into a credit agreement, dated as of May 17, 2021, with TD Bank, N.A. for a revolving credit facility for up to a maximum principal amount of $25.0 million. IDT Telecom may use the proceeds to finance working capital requirements and for certain closing costs of the facility. At April 30, 2023 and July 31, 2022, there were no amounts outstanding under this facility. In the nine months ended April 30, 2023 and 2022, IDT Telecom borrowed and repaid an aggregate of $2.4 million and $2.6 million, respectively, under the facility. The revolving credit facility is secured by primarily all of IDT Telecom’s assets. The principal outstanding bears interest per annum at the Intercontinental Exchange Benchmark Administration Ltd. LIBOR multiplied by the Regulation D maximum reserve requirement plus 125 to 175 basis points, depending upon IDT Telecom’s leverage ratio as computed for the most recent fiscal quarter. Interest is payable monthly, and all outstanding principal and any accrued and unpaid interest is due on May 16, 2024. IDT Telecom pays a quarterly unused commitment fee on the average daily balance of the unused portion of the $25.0 million commitment of 30 to 85 basis points, depending upon IDT Telecom’s leverage ratio as computed for the most recent fiscal quarter. IDT Telecom is required to comply with various affirmative and negative covenants as well as maintain certain targets based on financial ratios during the term of the revolving credit facility. As of April 30, 2023, IDT Telecom was in compliance with all of the covenants.
On September 29, 2021, NRS sold shares of its Class B common stock representing 2.5% of its outstanding capital stock on a fully diluted basis to Alta Fox Opportunities Fund LP, or Alta Fox, for cash of $10 million. Alta Fox has the right to request that NRS redeem all or any portion of the NRS common shares that it purchased at the per share purchase price during a period of 182 days following the fifth anniversary of this transaction. The redemption right shall terminate upon the consummation of (i) a sale of NRS or its assets for cash or securities that are listed on a national securities exchange, (ii) a public offering of NRS’ securities, or (iii) a distribution of NRS’ capital stock following which NRS’ common shares are listed on a national securities exchange.
In the nine months ended April 30, 2023 and 2022, we received cash from the exercise of stock options of $0.2 million and $0.1 million, respectively, for which we issued 12,500 and 10,000 shares, respectively, of our Class B common stock. In addition, in April 2022, Howard S. Jonas, our Chairman (an executive officer position) and the Chairman of our Board of Directors, exercised stock options for 1.0 million shares of our Class B common stock that were granted on May 2, 2017. The exercise price of these options was $14.93 per share and the expiration date was May 1, 2022. Mr. Jonas used 528,635 shares of our Class B common stock with a value of $14.9 million to pay the aggregate exercise price of the options.
We have an existing stock repurchase program authorized by our Board of Directors for the repurchase of shares of our Class B common stock. The Board of Directors authorized the repurchase of up to 8.0 million shares in the aggregate. In the nine months ended April 30, 2023, we repurchased 280,130 shares of our Class B common stock for an aggregate purchase price of $7.5 million. There were no repurchases under the program in the nine months ended April 30, 2022. At April 30, 2023, 4.9 million shares remained available for repurchase under the stock repurchase program.
In the nine months ended April 30, 2023 and 2022, we paid $0.3 million and $9.0 million, respectively, to repurchase 13,547 and 200,438 shares, respectively, of our Class B common stock that were tendered by employees of ours to satisfy the employees’ tax withholding obligations in connection with shares issued for bonus payments, the vesting of DSUs, and lapsing of restrictions on restricted stock. In addition, in April 2022, Mr. Jonas tendered 137,364 shares of our Class B common stock with a value of $3.9 million to satisfy a portion of his tax obligations in connection with his stock option exercises. Such shares were repurchased by us based on their fair market value as of the close of business on the trading day immediately prior to the vesting date.
Other Sources and Uses of Resources
We are considering spin-offs and other potential dispositions of certain of our subsidiaries. Some of the transactions under consideration are in early stages and others are more advanced. A spin-off may include the contribution of a significant amount of cash, cash equivalents, debt securities, and/or equity securities to the subsidiary prior to the spin-off, which would reduce our capital resources. There is no assurance at this time that any of these transactions will be completed.
We intend to, where appropriate, make strategic investments and acquisitions to complement, expand, and/or enter into new businesses. In considering acquisitions and investments, we search for opportunities to profitably grow our existing businesses and/or to add qualitatively to the range and diversification of businesses in our portfolio. At this time, we cannot guarantee that we will be presented with acquisition opportunities that meet our return-on-investment criteria, or that our efforts to make acquisitions that meet our criteria will be successful.
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| Item 3. | Quantitative and Qualitative Disclosures About Market Risks |
Foreign Currency Risk
Revenues from our international operations were 28% and 29% of our consolidated revenues in the three months ended April 30, 2023 and 2022, respectively, and 28% and 28% of our consolidated revenues in the nine months ended April 30, 2023 and 2022, respectively. Therefore, a significant portion of our revenues is in currencies other than the U.S. Dollar. Our foreign currency exchange risk is somewhat mitigated by our ability to offset a portion of these non-U.S. Dollar-denominated revenues with operating expenses that are paid in the same currencies. While the impact from fluctuations in foreign exchange rates affects our revenues and expenses denominated in foreign currencies, the net amount of our exposure to foreign currency exchange rate changes at the end of each reporting period is generally not material.
Investment Risk
We hold a portion of our assets in debt and equity securities, including hedge funds, for strategic and speculative purposes. At April 30, 2023 and July 31, 2022, the value of our debt and equity security holdings was an aggregate of $58.0 million and $46.8 million, respectively, which represented 11% and 9% of our total assets at April 30, 2023 and July 31, 2022, respectively. Investments in debt and equity securities carry a degree of risk and depend to a great extent on correct assessments of the future course of price movements of securities and other instruments. There can be no assurance that our investment managers will be able to accurately predict these price movements. The securities markets have in recent years been characterized by great volatility and unpredictability. Accordingly, the value of our investments may go down as well as up and we may not receive the amounts originally invested upon redemption.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of April 30, 2023.
Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended April 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
| Item 1. | Legal Proceedings |
Legal proceedings in which we are involved are described in Note 16 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report.
| Item 1A. | Risk Factors |
There are no material changes from the risk factors previously disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended July 31, 2022.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The following table provides information with respect to purchases by us of our shares during the third quarter of fiscal 2023:
Total | Average | Total
Number | Maximum | |||||||||||||
| February 1–28, 2023 | — | $ | — | — | 5,010,317 | |||||||||||
| March 1–31, 2023 (2) | 144 | $ | 30.56 | — | 5,010,317 | |||||||||||
| April 1–30, 2023 | 76,694 | $ | 32.57 | 76,694 | 4,933,623 | |||||||||||
| Total | 76,838 | $ | 32.56 | 76,694 | ||||||||||||
| (1) | On January 22, 2016, our Board of Directors approved a stock repurchase program to purchase up to 8.0 million shares of our Class B common stock. |
| (2) | Shares of our Class B common stock that were tendered by an employee of ours to satisfy the employee’s tax withholding obligations in connection with the lapsing of restrictions on restricted stock. Such shares were repurchased by us based on their fair market value as of the close of business on the trading day immediately prior to the vesting date. |
| Item 3. | Defaults Upon Senior Securities |
None
| Item 4. | Mine Safety Disclosures |
Not applicable
| Item 5. | Other Information |
None
| Item 6. | Exhibits |
| * | Filed or furnished herewith. |
| 38 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| IDT CORPORATION | ||
| June 9, 2023 | By: | /s/ SHMUEL JONAS |
Shmuel Jonas Chief Executive Officer | ||
| June 9, 2023 | By: | /s/ MARCELO FISCHER |
Marcelo Fischer Chief Financial Officer | ||
| 39 |