SEC Form 10-Q filed by IDT Corporation

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2024

or

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 1-16371

 

 

IDT CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware	22-3415036
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
520 Broad Street, Newark, New Jersey	07102
(Address of principal executive offices)	(Zip Code)

 

(973) 438-1000

(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
Class B common stock, par value $.01 per share		New York Stock Exchange

 

Trading symbol: IDT

 

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. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

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	☐	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 ☐ No ☒

 

As of June 5, 2024, the registrant had the following shares outstanding:

 

Class A common stock, $.01 par value:	1,574,326 shares outstanding (excluding 1,698,000 treasury shares)
Class B common stock, $.01 par value:	23,764,649 shares outstanding (excluding 4,400,168 treasury shares)

 

 

 

IDT CORPORATION

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION		3
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Equity	6
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	38
Item 4.	Controls and Procedures	39
PART II. OTHER INFORMATION		40
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	40
SIGNATURES		41

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

IDT CORPORATION

 

CONSOLIDATED BALANCE SHEETS

 

		April 30, 2024				July 31, 2023
		(Unaudited)				(Note 1)
		(in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents		$	139,773			$	103,637
Restricted cash and cash equivalents			93,072				95,186
Debt securities			29,384				42,414
Equity investments			4,844				6,198
Trade accounts receivable, net of allowance for credit losses of $6,717 at April 30, 2024 and allowance for doubtful accounts of $5,642 at July 31, 2023			38,967				32,092
Settlement assets, net of reserve of $1,676 at April 30, 2024 and $1,143 at July 31, 2023			21,435				32,396
Disbursement prefunding			36,626				30,113
Prepaid expenses			20,046				16,638
Other current assets			24,385				28,394
Total current assets			408,532				387,068
Property, plant, and equipment, net			38,515				38,655
Goodwill			26,254				26,457
Other intangibles, net			6,591				8,196
Equity investments			6,630				9,874
Operating lease right-of-use assets			4,370				5,540
Deferred income tax assets, net			15,270				24,101
Other assets			11,140				10,919
Total assets		$	517,302			$	510,810
Liabilities, redeemable noncontrolling interest, and equity
Current liabilities:
Trade accounts payable		$	23,976			$	22,231
Accrued expenses			99,335				110,796
Deferred revenue			32,070				35,343
Customer deposits			83,660				86,481
Settlement liabilities			22,853				21,495
Other current liabilities			15,937				17,761
Total current liabilities			277,831				294,107
Operating lease liabilities			1,753				2,881
Other liabilities			3,647				3,354
Total liabilities			283,231				300,342
Commitments and contingencies			-				-
Redeemable noncontrolling interest			10,791				10,472
Equity:
IDT Corporation stockholders’ equity:
Preferred stock, $.01 par value; authorized shares—10,000; no shares issued			—				—
Class A common stock, $.01 par value; authorized shares—35,000; 3,272 shares issued and 1,574 shares outstanding at April 30, 2024 and July 31, 2023			33				33
Class B common stock, $.01 par value; authorized shares—200,000; 28,165 and 27,851 shares issued and 23,766 and 23,699 shares outstanding at April 30, 2024 and July 31, 2023, respectively			282				279
Common stock, value			282				279
Additional paid-in capital			303,055				301,408
Treasury stock, at cost, consisting of 1,698 and 1,698 shares of Class A common stock and 4,399 and 4,152 shares of Class B common stock at April 30, 2024 and July 31, 2023, respectively			(122,668	)			(115,461	)
Accumulated other comprehensive loss			(17,243	)			(17,192	)
Retained earnings			51,028				24,662
Total IDT Corporation stockholders’ equity			214,487				193,729
Noncontrolling interests			8,793				6,267
Total equity			223,280				199,996
Total liabilities, redeemable noncontrolling interest, and equity		$	517,302			$	510,810

 

See accompanying notes to consolidated financial statements.

 

 

IDT CORPORATION

 

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

		2024				2023				2024				2023
		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands, except per share data)
Revenues		$	299,643			$	299,295			$	896,946			$	935,047
Direct cost of revenues			202,599				211,734				608,982				668,513
Gross profit			97,044				87,561				287,964				266,534
Operating expenses:
Selling, general and administrative (i)			68,962				60,130				200,685				177,475
Technology and development (i)			12,640				12,145				37,975				35,870
Severance			779				145				1,648				458
Other operating expense, net (see Note 10)			3,231				4,764				3,041				3,948
Total operating expenses			85,612				77,184				243,349				217,751
Income from operations			11,432				10,377				44,615				48,783
Interest income, net			1,162				709				3,201				2,029
Other expense, net			(3,273	)			(382	)			(6,326	)			(2,610	)
Income before income taxes			9,321				10,704				41,490				48,202
Provision for income taxes			(2,979	)			(2,960	)			(10,918	)			(12,594	)
Net income			6,342				7,744				30,572				35,608
Net income attributable to noncontrolling interests			(791	)			(854	)			(2,937	)			(3,093	)
Net income attributable to IDT Corporation		$	5,551			$	6,890			$	27,635			$	32,515
Earnings per share attributable to IDT Corporation common stockholders:
Basic		$	0.22			$	0.27			$	1.10			$	1.27
Diluted		$	0.22			$	0.27			$	1.09			$	1.27
Weighted-average number of shares used in calculation of earnings per share:
Basic			25,345				25,518				25,233				25,544
Diluted			25,516				25,612				25,380				25,589
(i) Stock-based compensation included in:
Selling, general and administrative expense		$	2,027			$	1,579			$	5,025			$	3,096
Technology and development expense		$	91			$	100			$	350			$	441

 

(i)	Stock-based compensation included in: Technology and development expense & Selling, general and administrative expense

 

See accompanying notes to consolidated financial statements.

 

 

IDT CORPORATION

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

		2024				2023				2024				2023
		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands)
Net income		$	6,342			$	7,744			$	30,572			$	35,608
Other comprehensive income (loss):
Change in unrealized loss on available-for-sale securities			(127	)			115				77				81
Foreign currency translation adjustments			160				(879	)			(128	)			(3,251	)
Other comprehensive income (loss)			33				(764	)			(51	)			(3,170	)
Comprehensive income			6,375				6,980				30,521				32,438
Comprehensive income attributable to noncontrolling interests			(791	)			(854	)			(2,937	)			(3,093	)
Comprehensive income attributable to IDT Corporation		$	5,584			$	6,126			$	27,584			$	29,345

 

See accompanying notes to consolidated financial statements.

 

 

IDT CORPORATION

 

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

 

		Three Months Ended April 30, 2024 (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, 2024		$	33			$	281			$	300,631			$	(118,631	)		$	(17,276	)		$	46,746			$	8,103			$	219,887
Dividends declared ($0.05 per share)			—				—				—				—				—				(1,269	)			—				(1,269	)
Repurchases of Class B common stock through repurchase program			—				—				—				(2,520	)			—				—				—				(2,520	)
Restricted Class B common stock purchased from employees			—				—				—				(1,517	)			—				—				—				(1,517	)
Stock issued to an executive officer for bonus payment			—				—				1,495				—				—				—				—				1,495
Business acquisition holdback payment			—				—				100				—				—				—				—				100
Exercise of stock options
Restricted Class B common stock purchased from employees
Stock-based compensation			—				1				829				—				—				—				—				830
Distributions to noncontrolling interests			—				—				—				—				—				—				(3	)			(3	)
Other comprehensive income			—				—				—				—				33				—				—				33
Net income			—				—				—				—				—				5,551				693				6,244
BALANCE AT APRIL 30, 2024		$	33			$	282			$	303,055			$	(122,668	)		$	(17,243	)		$	51,028			$	8,793			$	223,280

 

		Nine Months Ended April 30, 2024 (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 JULY 31, 2023		$	33			$	279			$	301,408			$	(115,461	)		$	(17,192	)		$	24,662			$	6,267			$	199,996
Dividends declared ($0.05 per share)			—				—				—				—				—				(1,269	)			—				(1,269	)
Exercise of stock options			—				—				172				—				—				—				—				172
Repurchases of Class B common stock through repurchase program			—				—				—				(5,675	)			—				—				—				(5,675	)
Restricted Class B common stock purchased from employees			—				—				—				(1,532	)			—				—				—				(1,532	)
Restricted net2phone common stock purchased from employees			—				—				(3,611	)			—				—				—				53				(3,558	)
Exchange of National Retail Solutions shares for Class B common stock			—				2				81				—				—				—				(83	)			—
Stock issued to an executive officer for bonus payment			—				—				1,495				—				—				—				—				1,495
Business acquisition holdback payment			—				—				100				—				—				—				—				100
Stock-based compensation			—				1				3,410				—				—				—				—				3,411
Distributions to noncontrolling interests			—				—				—				—				—				—				(62	)			(62	)
Other comprehensive loss			—				—				—				—				(51	)			—				—				(51	)
Net income			—				—				—				—				—				27,635				2,618				30,253
BALANCE AT APRIL 30, 2024		$	33			$	282			$	303,055			$	(122,668	)		$	(17,243	)		$	51,028			$	8,793			$	223,280

 

 

IDT CORPORATION

 

CONSOLIDATED STATEMENTS OF EQUITY—Continued

(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		$	33			$	278			$	298,649			$	(106,906	)		$	(13,711	)		$	9,795			$	4,876			$	193,014
Repurchases of Class B common stock through repurchase program			—				—				—				(2,500	)			—				—				—				(2,500	)
Restricted Class B common stock purchased from employees			—				—				—				(4	)			—				—				—				(4	)
Stock-based compensation			—				—				1,679				—				—				—				—				1,679
Distributions to noncontrolling interests			—				—				—				—				—				—				(106	)			(106	)
Other comprehensive loss			—				—				—				—				(764	)			—				—				(764	)
Net income			—				—				—				—				—				6,890				794				7,684
BALANCE AT APRIL 30, 2023		$	33			$	278			$	300,328			$	(109,410	)		$	(14,475	)		$	16,685			$	5,564			$	199,003

 

		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		$	33			$	277			$	296,005			$	(101,565	)		$	(11,305	)		$	(15,830	)		$	3,022			$	170,637
BALANCE		$	33			$	277			$	296,005			$	(101,565	)		$	(11,305	)		$	(15,830	)		$	3,022			$	170,637
Exercise of stock options			—				—				172				—				—				—				—				172
Repurchases of Class B common stock through repurchase program			—				—				—				(7,506	)			—				—				—				(7,506	)
Restricted Class B common stock purchased from employees			—				—				—				(339	)			—				—				—				(339	)
Stock issued to certain executive officers for bonus payments			—				—				615				—				—				—				—				615
Stock-based compensation			—				1				3,536				—				—				—				—				3,537
Distributions to noncontrolling interests			—				—				—				—				—				—				(293	)			(293	)
Other comprehensive loss			—				—				—				—				(3,170	)			—				—				(3,170	)
Other comprehensive income (loss)			—				—				—				—				(3,170	)			—				—				(3,170	)
Net income			—				—				—				—				—				32,515				2,835				35,350
BALANCE AT APRIL 30, 2023		$	33			$	278			$	300,328			$	(109,410	)		$	(14,475	)		$	16,685			$	5,564			$	199,003
BALANCE		$	33			$	278			$	300,328			$	(109,410	)		$	(14,475	)		$	16,685			$	5,564			$	199,003

 

See accompanying notes to consolidated financial statements.

 

 

IDT CORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

		Nine Months Ended April 30,
		2024				2023
		(in thousands)
Operating activities
Net income		$	30,572			$	35,608
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			15,256				14,986
Deferred income taxes			8,830				9,200
Provision for credit losses, doubtful accounts receivable, and reserve for settlement assets			3,010				1,180
Net unrealized loss from marketable securities			1,537				3,151
Stock-based compensation			5,375				3,537
Other			2,528				2,114
Change in assets and liabilities:
Trade accounts receivable			(9,000	)			57
Settlement assets, disbursement prefunding, prepaid expenses, other current assets, and other assets			6,797				(29,184	)
Trade accounts payable, accrued expenses, settlement liabilities, other current liabilities, and other liabilities			(12,263	)			(6,220	)
Customer deposits at IDT Financial Services Limited (Gibraltar-based bank)			(431	)			(2,570	)
Deferred revenue			(2,903	)			(3,160	)
Net cash provided by operating activities			49,308				28,699
Investing activities
Capital expenditures			(13,621	)			(16,033	)
Purchase of convertible preferred stock in equity method investment			(1,513	)			(168	)
Payments for acquisition			(60	)			—
Purchases of debt securities and equity investments			(27,593	)			(44,166	)
Proceeds from maturities and sales of debt securities and redemptions of equity investments			41,527				34,309
Net cash used in investing activities			(1,260	)			(26,058	)
Financing activities
Dividends paid			(1,269	)			—
Distributions to noncontrolling interests			(62	)			(293	)
Proceeds from notes payable			100				300
Repayment of notes payable.			(128	)			(2,031	)
Proceeds from borrowings under revolving credit facility			32,864				2,383
Repayment of borrowings under revolving credit facility.			(32,864	)			(2,383	)
Proceeds from exercise of stock options			172				172
Repurchases of Class B common stock			(7,207	)			(7,845	)
Net cash used in financing activities			(8,394	)			(9,697	)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents			(5,632	)			2,537
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents			34,022				(4,519	)
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period			198,823				189,562
Cash, cash equivalents, and restricted cash and cash equivalents at end of period		$	232,845			$	185,043
Supplemental schedule of non-cash financing activities
Shares of Class B common stock issued for business acquisition holdback payment		$	100			$	—
Restricted net2phone common stock withheld from employees for income tax obligations		$	3,558			$	—
Value of Class B common stock exchanged for National Retail Solutions shares		$	6,254			$	—
Conversion of equity method investment’s secured promissory notes into convertible preferred stock		$	—			$	4,038
Stock issued to certain executive officers for bonus payments		$	1,495			$	615

 

See accompanying notes to consolidated financial statements.

 

 

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, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2024. The balance sheet at July 31, 2023 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, 2023, 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 2024 refers to the fiscal year ending July 31, 2024).

 

As of April 30, 2024, the Company owned 94.0% of the outstanding shares of its subsidiary, net2phone 2.0, Inc. (“net2phone 2.0”), which owns and operates the net2phone segment, and 81.2% of the outstanding shares of National Retail Solutions (“NRS”), and, on a fully diluted basis, assuming all the vesting criteria related to various rights granted have been met and other assumptions, the Company would own 90.1% of net2phone 2.0 and 78.9% of NRS.

 

Reclassifications

 

From and after August 1, 2023, the Company includes depreciation and amortization in “Direct cost of revenues” and “Selling, general and administrative” expense and is reporting gross profit (in accordance with U.S. GAAP) in the consolidated statements of income. Prior to August 1, 2023, depreciation and amortization was a separate caption in the consolidated statements of income.

 

From and after February 1, 2024, the Company reclassified most of its technology and development expenses from “Selling, general and administrative” expense to a new “Technology and development” expense caption in the consolidated statements of income and reclassified an amount that was immaterial in all periods to “Direct cost of revenues.” “Technology and development” expense consists primarily of personnel-related expenses for employees involved in the research, design, development, and maintenance of both new and existing technology products and services, including salaries, benefits, and stock-based compensation. “Technology and development” expense also includes costs for software licenses, subscription services, and other companywide technology tools dedicated for use by the Company’s technology and development teams. The costs of third-party contractors that support the Company’s technology and development are also included. “Technology and development” expense also includes the costs of product and engineering teams used to support the development of both internal infrastructure and internal-use software, to the extent such costs do not qualify for capitalization. The expenses reclassified to “Direct cost of revenues” are the costs of cloud computing arrangements hosted by a vendor in the production environment incurred by the net2phone segment and NRS, and net2phone’s colocation costs for data centers where net2phone is not fully operational in the cloud. Finally, depreciation and amortization of capitalized internal use software costs was reclassified from “Selling, general and administrative” expense to “Technology and development” expense.

 

The following table shows the amounts that were reclassified in the three and nine months ended April 30, 2023 to conform to the current year’s presentation:

 Schedule of Amount that were Reclassified

		Three Months Ended April 30, 2023				Nine Months Ended April 30, 2023
		(in thousands)
Selling, general and administrative expense reclassified to:
Direct cost of revenues		$	334			$	944
Technology and development expense		$	8,896			$	26,308
Selling, general and administrative expense		$	8,896			$	26,308
Depreciation and amortization expense reclassified to:
Direct cost of revenues		$	1,150			$	3,289
Selling, general and administrative expense		$	786			$	2,135
Technology and development expense		$	3,249			$	9,562
Depreciation and amortization expense		$	3,249			$	9,562

 

In the consolidated statements of cash flows, cash used in “Trade accounts receivable” in the nine months ended April 30, 2023 of $2.1 million was reclassified to “Settlement assets, disbursement prefunding, prepaid expenses, other current assets, and other assets” to conform to the current year’s presentation.

 

9

 

 

Recently Adopted Accounting Standard

 

On August 1, 2023, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, that changed the impairment model for most financial assets and certain other instruments. For receivables, entities are required to use a new forward-looking current expected credit loss model to determine its allowance for credit losses, which replaced the allowance for doubtful accounts. When determining the allowance for credit losses for its trade accounts receivable, the Company considers the probability of recoverability of accounts receivable based on past experience, taking into account current collection trends and general economic factors, including bankruptcy rates. The Company also considers future economic trends to estimate expected credit losses over the lifetime of the asset. Credit risks will be assessed based on historical write-offs, net of recoveries, as well as an analysis of the aged accounts receivable balances with allowances generally increasing as the receivable ages. Accounts receivable may be fully reserved for when specific collection issues are known to exist, such as pending bankruptcies. Account balances are written off against the allowance when it is determined that the receivable will not be recovered. For available-for-sale debt securities with unrealized losses, the concept of “other-than-temporary” impairment was replaced by a determination whether any impairment is a result of a credit loss or other factors. The portion of the unrealized loss that is the result of a credit loss is recognized as an allowance and a corresponding expense recorded in “Other expense, net” in the consolidated statements of income. Unrealized loss that is not the result of a credit loss is recorded in “Accumulated other comprehensive loss” in the consolidated balance sheets. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements, and it was not necessary to record a cumulative-effect adjustment to retained earnings as of August 1, 2023.

 

Note 2—Business Segment Information

 

The Company has four reportable business segments, NRS, Fintech, net2phone, and Traditional Communications. Any items not included within, or allocated to, one of the segments is presented under “Corporate.”

 

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 Fintech segment is comprised of: (i) BOSS Money, a provider of international money remittance and related value/payment transfer services: and (ii) 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 that operates money transfer businesses, and IDT Financial Services Limited (“IDT Financial Services”), the Company’s Gibraltar-based bank.

 

The net2phone segment is comprised of net2phone’s integrated cloud communications and contact center services.

 

The Traditional Communications segment includes: (i) IDT Digital Payments, which enables customers to transfer airtime and bundles of airtime, messaging, and data to international and domestic mobile accounts: (ii) BOSS Revolution Calling, an international long-distance calling service marketed primarily to immigrant communities in the United States and Canada: and (iii) 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.

 

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.

 

10

 

 

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.

 

Operating results for the business segments of the Company were as follows:

 Schedule of Operating Results of Business Segments

(in thousands)		National Retail Solutions				Fintech				net2phone				Traditional Communications				Corporate				Total
Three Months Ended April 30, 2024
Revenues		$	25,712			$	31,526			$	20,677			$	221,728			$	—			$	299,643
Income (loss) from operations			4,768				(553	)			476				12,467				(5,726	)			11,432
Depreciation and amortization:
Included in “Direct cost of revenues”			501				47				600				168				—				1,316
Included in “Selling, general and administrative” expense			33				33				274				214				17				571
Included in “Technology and development” expense			285				643				700				1,596				—				3,224
Three Months Ended April 30, 2023
Revenues		$	18,073			$	21,787			$	18,392			$	241,043			$	—			$	299,295
Income (loss) from operations			2,079				(1,318	)			(377	)			12,924				(2,931	)			10,377
Depreciation and amortization:
Included in “Direct cost of revenues”			384				21				558				187				—				1,150
Included in “Selling, general and administrative” expense			29				317				213				227				—				786
Included in “Technology and development” expense			203				374				631				2,041				—				3,249
Nine Months Ended April 30, 2024
Revenues		$	74,930			$	86,076			$	60,957			$	674,983			$	—			$	896,946
Income (loss) from operations			15,578				(2,673	)			836				42,491				(11,617	)			44,615
Depreciation and amortization:
Included in “Direct cost of revenues”			1,433				132				1,799				538				—				3,902
Included in “Selling, general and administrative” expense			96				361				709				592				65				1,823
Included in “Technology and development” expense			801				1,648				2,056				5,026				—				9,531
Nine Months Ended April 30, 2023
Revenues		$	57,208			$	61,995			$	53,136			$	762,708			$	—			$	935,047
Income (loss) from operations			12,684				(613	)			(2,008	)			47,195				(8,475	)			48,783
Depreciation and amortization:
Included in “Direct cost of revenues”			1,061				65				1,592				571				—				3,289
Included in “Selling, general and administrative” expense			88				955				762				294				36				2,135
Included in “Technology and development” expense			539				970				1,790				6,263				—				9,562
Total depreciation and amortization			539				970				1,790				6,263				—				9,562

 

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’s 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-consumer and through distributors and retailers.

 

11

 

 

Disaggregated Revenues

 

The following table shows the Company’s revenues disaggregated by business segment and service offered to customers:

 Schedule of Revenues Disaggregated by Business Segment and Service Offered to Customers

		2024				2023				2024				2023
		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands)
National Retail Solutions		$	25,712			$	18,073			$	74,930			$	57,208
BOSS Money			27,593				19,441				76,871				54,644
Other			3,933				2,346				9,205				7,351
Total Fintech			31,526				21,787				86,076				61,995
net2phone			20,677				18,392				60,957				53,136
IDT Digital Payments			101,559				101,030				301,165				316,207
BOSS Revolution Calling			63,245				77,646				201,169				246,729
IDT Global			50,067				54,473				150,843				174,715
Other			6,857				7,894				21,806				25,057
Total Traditional Communications			221,728				241,043				674,983				762,708
Total		$	299,643			$	299,295			$	896,946			$	935,047
Revenues		$	299,643			$	299,295			$	896,946			$	935,047

 

The following table shows the Company’s revenues disaggregated by geographic region, which is determined based on selling location:

 Schedule of Revenues Disaggregated by Geographic Region

(in thousands)		National Retail Solutions				Fintech				net2phone				Traditional Communications				Total
Three Months Ended April 30, 2024
United States		$	25,712			$	30,469			$	11,330			$	166,093			$	233,604
Outside the United States:
United Kingdom			—				—				—				48,441				48,441
Other			—				1,057				9,347				7,194				17,598
Total outside the United States			—				1,057				9,347				55,635				66,039
Total		$	25,712			$	31,526			$	20,677			$	221,728			$	299,643
Revenues		$	25,712			$	31,526			$	20,677			$	221,728			$	299,643

 

(in thousands)		National Retail Solutions				Fintech				net2phone				Traditional Communications				Total
Three Months Ended April 30, 2023
United States		$	18,073			$	21,124			$	9,571			$	166,854			$	215,622
Outside the United States:
United Kingdom			—				—				—				64,415				64,415
Other			—				663				8,821				9,774				19,258
Total outside the United States			—				663				8,821				74,189				83,673
Total		$	18,073			$	21,787			$	18,392			$	241,043			$	299,295
Revenues		$	18,073			$	21,787			$	18,392			$	241,043			$	299,295

 

(in thousands)		National Retail Solutions				Fintech				net2phone				Traditional Communications				Total
Nine Months Ended April 30, 2024
United States		$	74,930			$	83,204			$	32,718			$	492,935			$	683,787
Outside the United States:
United Kingdom			—				—				—				157,673				157,673
Other			—				2,872				28,239				24,375				55,486
Total outside the United States			—				2,872				28,239				182,048				213,159
Total		$	74,930			$	86,076			$	60,957			$	674,983			$	896,946
Revenues		$	74,930			$	86,076			$	60,957			$	674,983			$	896,946

 

(in thousands)		National Retail Solutions				Fintech				net2phone				Traditional Communications				Total
Nine Months Ended April 30, 2023
United States		$	57,208			$	59,991			$	27,888			$	528,116			$	673,203
Outside the United States:
United Kingdom			—				—				—				202,355				202,355
Other			—				2,004				25,248				32,237				59,489
Total outside the United States			—				2,004				25,248				234,592				261,844
Total		$	57,208			$	61,995			$	53,136			$	762,708			$	935,047
Revenues		$	57,208			$	61,995			$	53,136			$	762,708			$	935,047

 

12

 

 

Remaining Performance Obligations

 

The following table includes revenue by business segment expected to be recognized in the future from performance obligations that were unsatisfied or partially unsatisfied as of April 30, 2024. The table excludes contracts that had an original expected duration of one year or less.

 Schedule of Estimated Revenue by Business Segment

(in thousands)		National Retail Solutions				net2phone				Total
Twelve-month period ending April 30:
2025		$	6,305			$	38,388			$	44,693
2026			5,262				18,749				24,011
Thereafter			5,128				6,319				11,447
Total		$	16,695			$	63,456			$	80,151

 

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 currently 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”.

 

The following table presents information about the Company’s contract liability balance:

 Schedule of Information About Contract Liabilities

		2024				2023				2024				2023
		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands)
Revenue recognized in the period from amounts included in the contract liability balance at the beginning of the period		$	15,231			$	16,772			$	20,477			$	21,890

 

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.

 

13

 

 

The Company’s deferred customer contract acquisition costs were as follows:

 Schedule of Deferred Customer Contract Acquisition Costs

		April 30, 2024				July 31, 2023
		(in thousands)
Deferred customer contract acquisition costs included in “Other current assets”		$	4,145			$	4,460
Deferred customer contract acquisition costs included in “Other assets”			3,957				3,734
Total		$	8,102			$	8,194

 

The Company’s amortization of deferred customer contract acquisition costs during the periods were as follows:

 Schedule of Amortization of Deferred Customer Contract Acquisition Costs

		2024				2023				2024				2023
		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands)
Amortization of deferred customer contract acquisition costs		$	1,167			$	1,226			$	3,576			$	3,631

   

Note 4—Leases

 

The Company’s leases primarily consist of operating leases for office space. These leases have remaining terms from less than one year to six years. Certain of these leases contain renewal options that may be exercised and/or options to terminate the lease. The Company has concluded that it is not reasonably certain that it would exercise any of these options.

 

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.

 

Supplemental disclosures related to the Company’s operating leases were as follows:

 Schedule of Supplemental Disclosures Related to the Company's Operating Leases

		2024				2023				2024				2023
		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands)
Operating lease cost		$	746			$	817			$	2,238			$	2,384
Short-term lease cost			311				256				770				784
Total lease cost		$	1,057			$	1,073			$	3,008			$	3,168
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	738			$	842			$	2,253			$	2,431
Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases		$	738			$	842			$	2,253			$	2,431

 

 Schedule of Supplemental Disclosures Related Weighted Average Operating Leases

		April 30, 2024				July 31, 2023
Weighted-average remaining lease term-operating leases		2.5 years				2.3 years
Weighted-average discount rate-operating leases			4.4	%			3.7	%

 

In the nine months ended April 30, 2024 and 2023, the Company obtained right-of-use assets of $0.9 million and $1.7 million, respectively, in exchange for new operating lease liabilities.

 

The Company’s aggregate operating lease liability was as follows:

 Schedule of Aggregate Operating Lease Liability

		April 30, 2024				July 31, 2023
		(in thousands)
Operating lease liabilities included in “Other current liabilities”		$	2,804			$	2,861
Operating lease liabilities included in noncurrent liabilities			1,753				2,881
Total		$	4,557			$	5,742

 

Future minimum maturities of operating lease liabilities were as follows:

 Schedule of Future Minimum Maturities of Operating Lease Liabilities

(in thousands)
Twelve-month period ending April 30:
2025		$	2,953
2026			796
2027			559
2028			272
2029			180
Thereafter			105
Total lease payments			4,865
Less imputed interest			(308	)
Total operating lease liabilities		$	4,557

 

14

 

 

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:

 Schedule of Cash, Cash Equivalents, and Restricted Cash and Cash Equivalents

		April 30, 2024				July 31, 2023
		(in thousands)
Cash and cash equivalents		$	139,773			$	103,637
Restricted cash and cash equivalents			93,072				95,186
Total cash, cash equivalents, and restricted cash and cash equivalents		$	232,845			$	198,823

 

At April 30, 2024 and July 31, 2023, restricted cash and cash equivalents included $84.5 million and $87.3 million, respectively, in restricted cash and cash equivalents for customer deposits held by IDT Financial Services. Certain of the electronic money financial services regulations in Gibraltar require IDT Financial Services to safeguard cash held for customer deposits, segregate cash held for customer deposits from any other cash that IDT Financial Services holds and utilize the cash only for the intended payment transaction.

 

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, 2024 and July 31, 2023, “Cash and cash equivalents” in the Company’s consolidated balance sheets included an aggregate of $42.2 million and $20.6 million, respectively, held by IDT Payment Services, Inc. and IDT Payment Services of New York, LLC, that was unavailable for other purposes.

 

Note 6—Debt Securities

 

The following is a summary of available-for-sale debt securities:

Schedule of Available-for-sale Securities

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(in thousands)
April 30, 2024:
U.S. Treasury bills and notes		$	23,710			$	—			$	(131	)		$	23,579
Government sponsored enterprise notes			2,378				—				(6	)			2,372
Corporate bonds			3,864				—				(431	)			3,433
Total		$	29,952			$	—			$	(568	)		$	29,384
July 31, 2023:
Certificates of deposit*		$	4,080			$	—			$	(4	)		$	4,076
U.S. Treasury bills and notes			31,186				—				(148	)			31,038
Government sponsored enterprise notes			3,881				—				(8	)			3,873
Corporate bonds			3,912				—				(485	)			3,427
Total		$	43,059			$	—			$	(645	)		$	42,414

 

*	Each of the Company’s certificates of deposit has a CUSIP, was purchased in the secondary market through a broker and may be sold in the secondary market.

 

15

 

 

The gross unrealized losses in the table above are recorded in “Accumulated other comprehensive loss” in the consolidated balance sheets. As of April 30, 2024, the Company determined that the unrealized losses were due to changes in interest rates or market liquidity and were not due to credit losses. In addition, as of April 30, 2024 and July 31, 2023, the Company did not intend to sell any of the securities with unrealized losses, 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.

 

Proceeds from maturities and sales of debt securities and redemptions of equity investments were $10.3 million and $6.8 million in the three months ended April 30, 2024 and 2023, respectively, and $41.5 million and $34.3 million in the nine months ended April 30, 2024 and 2023, respectively. There were no realized gains or realized losses from sales of debt securities in the three and nine months ended April 30, 2024 and 2023. The Company uses the specific identification method in computing the realized gains and realized losses on the sales of debt securities.

   

The contractual maturities of the Company’s available-for-sale debt securities at April 30, 2024 were as follows:

Schedule of Contractual Maturities of Available-for-sale Debt Securities

 

		Fair Value
			(in thousands)
Within one year		$	21,816
After one year through five years			6,441
After five years through ten years			1,078
After ten years			49
Total		$	29,384

 

The following available-for-sale debt securities were in an unrealized loss position for which other-than-temporary impairments were not recognized:

Schedule of Available-for-sale Securities, Unrealized Loss Position

 

		Unrealized Losses				Fair Value
		(in thousands)
April 30, 2024:
U.S. Treasury bills and notes		$	131			$	23,579
Government sponsored enterprise notes			6				2,372
Corporate bonds			431				3,433
Total		$	568			$	29,384
July 31, 2023:
Certificates of deposit		$	4			$	3,356
U.S. Treasury bills and notes			148				31,038
Government sponsored enterprise notes			8				3,873
Corporate bonds			485				3,368
Total		$	645			$	41,635

   

The following available-for-sale debt securities included in the table above were in a continuous unrealized loss position for 12 months or longer:

Schedule of Continuous Unrealized Loss Position for 12 Months or Longer

 

		Unrealized Losses				Fair Value
		(in thousands)
April 30, 2024:
U.S. Treasury bills and notes		$	72			$	2,950
Corporate bonds			411				3,218
Total		$	483			$	6,168
July 31, 2023:
U.S. Treasury bills and notes		$	86			$	816
Corporate bonds			484				3,299
Total		$	570			$	4,115

 

16

 

 

Note 7—Equity Investments

 

Equity investments consist of the following:

Schedule of Equity Investments

 

		April 30, 2024				July 31, 2023
		(in thousands)
Zedge, Inc. Class B common stock, 42,282 shares at April 30, 2024 and July 31, 2023		$	102			$	89
Rafael Holdings, Inc. Class B common stock, 278,810 shares at April 30, 2024 and July 31, 2023			443				558
Other marketable equity securities			169				1,497
Fixed income mutual funds			4,130				4,054
Current equity investments		$	4,844			$	6,198
Visa Inc. Series C Convertible Participating Preferred Stock (“Visa Series C Preferred”)		$	1,425			$	1,263
Convertible preferred stock—equity method investment			1,565				2,784
Hedge funds			2,915				3,002
Other			725				2,825
Noncurrent equity investments		$	6,630			$	9,874

 

Howard S. Jonas, the Chairman of the Company and the Chairman of the Company’s Board of Directors, is also the Vice-Chairman of the Board of Directors of Zedge, Inc. and the Chairman of the Board of Directors and Executive Chairman of Rafael Holdings, Inc.

 

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:

Schedule of Carrying Value of Equity Investments

 

		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands)
Balance, beginning of period		$	1,719			$	1,594			$	1,632			$	1,501
Adjustment for observable transactions involving a similar investment from the same issuer			(25	)			13				162				106
Upward adjustment			—				—				130				—
Redemption			—				—				(230	)			—
Impairments			—				—				—				—
Balance, end of the period		$	1,694			$	1,607			$	1,694			$	1,607

 

The Company adjusted the carrying value of the shares of Visa Series C Preferred it held based on the fair value of Visa Class A common stock, including a discount for lack of current marketability, which is classified as “Adjustment for observable transactions involving a similar investment from the same issuer” in the table above. In addition, in connection with the acquisition of Regal Bancorp by SR Bancorp, the Company received cash of $0.2 million in December 2023 in exchange for its shares of Regal Bancorp common stock.

 

Unrealized losses for all equity investments measured at fair value included the following:

Schedule of Unrealized Gains (losses) Gains for All Equity Investments

 

		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands)
Net losses recognized during the period on equity investments		$	(78	)		$	(480	)		$	(280	)		$	(2,649	)
Less: net gains recognized during the period on equity investments sold during the period			—				—				130				18
Unrealized losses recognized during the period on equity investments still held at the reporting date		$	(78	)		$	(480	)		$	(410	)		$	(2,667	)

 

17

 

 

The unrealized 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,
		2024				2023				2024				2023
		(in thousands)
Unrealized (losses) gains recognized during the period on equity investments:
Rafael Class B common stock		$	(61	)		$	11			$	(115	)		$	20
Zedge Class B common stock		$	(36	)		$	(9	)		$	13			$	(33	)
Unrealized losses recognized during the period on equity investments still held at the reporting date		$	(36	)		$	(9	)		$	13			$	(33	)

 

Equity Method Investment

 

The Company has an investment in shares of convertible preferred stock of a communications company (the equity method investee, or “EMI”). As of April 30, 2024 and July 31, 2023, the Company’s ownership was 33.4% and 33.3%, respectively, of the EMI’s outstanding shares on an as converted basis. 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 does not have a controlling interest.

 

The Company determined that on the dates of the acquisitions of the EMI’s shares, there were differences between its investment in the EMI and its proportional interest in the equity of the EMI of an aggregate of $8.2 million, which represented the share of the EMI’s customer list on the dates of the acquisitions attributed to the Company’s interest in the EMI. These basis differences are being amortized over the 6-year estimated life of the customer list. In the accompanying consolidated statements of income, amortization of equity method basis difference is included in the equity in the net loss of investee, which is recorded in “Other expense, net” (see Note 17).

 

In February 2024, each of the EMI’s shareholders (including the Company) agreed to purchase additional shares of the EMI’s convertible preferred stock. The Company paid an aggregate of $0.5 million in the three months ended April 30, 2024 to purchase the additional shares.

 

In April 2024, each of the EMI’s shareholders (including the Company) agreed to purchase additional shares of the EMI’s convertible preferred stock. The Company paid $0.3 million in May 2024 and is committed to pay $0.2 million to purchase the additional shares.

 

The following table summarizes the change in the balance of the Company’s equity method investment:

Summary of Changes in Equity Method Investments

 

		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands)
Balance, beginning of period		$	1,932			$	(374	)		$	2,784			$	1,001
Purchase of convertible preferred stock			504				168				1,513				168
Conversion of secured promissory notes into convertible preferred stock			—				4,038				—				4,038
Equity in the net loss of investee			(529	)			(532	)			(1,704	)			(1,544	)
Amortization of equity method basis difference			(342	)			(236	)			(1,028	)			(599	)
Balance, end of the period		$	1,565			$	3,064			$	1,565			$	3,064

 

Summarized financial information of the EMI was as follows:

Summary of Statements of Operations

 

		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands)
Revenues		$	3,351			$	2,115			$	11,156			$	5,806
Costs and expenses:
Direct cost of revenues			2,477				1,693				9,013				4,921
Selling, general and administrative			2,366				2,080				6,892				5,488
Total costs and expenses			4,843				3,773				15,905				10,409
Loss from operations			(1,492	)			(1,658	)			(4,749	)			(4,603	)
Other income (expense), net			20				(266	)			20				(1,108	)
Net loss		$	(1,472	)		$	(1,924	)		$	(4,729	)		$	(5,711	)

 

18

 

 

Note 8—Fair Value Measurements

 

The following table presents the balance of assets and liabilities measured at fair value on a recurring basis:

Schedule of Balance of Assets Measured at Fair Value on a Recurring Basis

 

		Level 1 (1)				Level 2 (2)				Level 3 (3)				Total
		(in thousands)
April 30, 2024
Debt securities		$	23,579			$	5,805			$	—			$	29,384
Equity investments included in current assets			4,844				—				—				4,844
Equity investments included in noncurrent assets			—				500				1,425				1,925
Total		$	28,423			$	6,305			$	1,425			$	36,153
Acquisition consideration included in:
Other current liabilities		$	—			$	—			$	(190	)		$	(190	)
Other noncurrent liabilities			—				—				(2,722	)			(2,722	)
Total		$	—			$	—			$	(2,912	)		$	(2,912	)
July 31, 2023
Debt securities		$	31,038			$	11,376			$	—			$	42,414
Equity investments included in current assets			6,198				—				—				6,198
Equity investments included in noncurrent assets			—				2,500				1,263				3,763
Total		$	37,236			$	13,876			$	1,263			$	52,375
Acquisition consideration included in:
Other current liabilities		$	—			$	—			$	(2,032	)		$	(2,032	)
Other noncurrent liabilities			—				—				(2,773	)			(2,773	)
Total		$	—			$	—			$	(4,805	)		$	(4,805	)

 

(1)	– quoted prices in active markets for identical assets or liabilities
(2)	– observable inputs other than quoted prices in active markets for identical assets and liabilities
(3)	– no observable pricing inputs in the market

 

At April 30, 2024 and July 31, 2023, the Company had $2.9 million and $3.0 million, respectively, in investments in hedge funds, which were included in noncurrent “Equity investments” in the accompanying consolidated balance sheets. The Company’s investments in hedge funds were accounted for using the equity method, therefore they were not measured at fair value.

 

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):

Schedule of Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

 

		2024				2023				2024				2023
		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands)
Balance, beginning of period		$	1,450			$	1,225			$	1,263			$	1,132
Total (losses) gains included in “Other expense, net”			(25	)			13				162				106
Balance, end of period		$	1,425			$	1,238			$	1,425			$	1,238
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the period		$	—			$	—			$	—			$	—

 

19

 

 

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):

Schedule of 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,
		2024				2023				2024				2023
		(in thousands)
Balance, beginning of period		$	4,517			$	6,609			$	4,805			$	8,546
Payments			(1,650	)			(1,800	)			(1,864	)			(2,175	)
Total losses (gains) included in:
“Other operating expense, net”			—				216				(73	)			(1,349	)
Interest expense included in “Interest income, net”			45				97				45				97
“Foreign currency translation adjustment”			—				2				(1	)			5
Balance, end of period		$	2,912			$	5,124			$	2,912			$	5,124
Change in unrealized gains or losses for the period included in earnings for liabilities held at the end of the period		$	—			$	—			$	—			$	—

 

In the nine months ended April 30, 2024 and 2023, the Company paid an aggregate of $1.9 million and $2.2 million, respectively, for contingent consideration related to prior acquisitions, which, in the nine months ended April 30, 2024, included 2,679 shares of the Company’s Class B common stock with an issue date value of $0.1 million. In addition, in January 2024, the Company determined that the requirement for a contingent consideration payment related to an acquisition in a prior period would not be met, and, in September 2022, the Company determined that the requirements for a portion of the contingent consideration payments related to the Leaf acquisition would not be met. The Company recognized gains of $0.1 million and $1.6 million in the nine months ended April 30, 2024 and 2023, respectively, on the write-off of these contingent consideration payment obligations. Also, in the three and nine months ended April 30, 2023, the Company increased the estimated fair value of acquisition-related contingent consideration by $0.2 million. These write-offs of contingent consideration net of the increase in the contingent consideration were included in “Other operating expense, net” in the accompanying consolidated statements of income.

 

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, settlement assets, other current assets, customer deposits, settlement liabilities, and other current liabilities. At April 30, 2024 and July 31, 2023, 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 settlement assets, other current assets, customer deposits, settlement liabilities, and other current liabilities were classified as Level 2 of the fair value hierarchy.

 

Other assets and other liabilities. At April 30, 2024 and July 31, 2023, 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 variable interest entity (“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 (repaid to) provided by the Company were as follows:

Schedule of Net (Loss) Income and Aggregate Funding to the Company by VIE

 

		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands)
Net income of the VIE		$	301			$	43			$	275			$	208
Aggregate funding (repaid to) provided by the Company, net		$	(110	)		$	—			$	127			$	87

 

20

 

 

The VIE’s summarized consolidated balance sheet amounts are as follows:

VIE’s Summarized Consolidated Balance Sheet

 

		April 30, 2024				July 31, 2023
		(in thousands)
Assets:
Cash and equivalents		$	2,529			$	1,596
Restricted cash			8,525				7,848
Trade accounts receivable, net			99				62
Disbursement prefunding			1,375				585
Prepaid expenses			220				197
Other current assets			307				317
Property, plant, and equipment, net			156				272
Other intangibles, net			622				737
Total assets		$	13,833			$	11,614
Liabilities and noncontrolling interests:
Trade accounts payable		$	51			$	—
Accrued expenses			137				70
Settlement liabilities			9,247				7,573
Due to the Company			153				26
Accumulated other comprehensive income			46				21
Noncontrolling interests			4,199				3,924
Total liabilities and noncontrolling interests		$	13,833			$	11,614

 

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.

 

Note 10—Other Operating Expense, Net

 

The following table summarizes the other operating expense, net by business segment:

Schedule of Other Operating (Expense) Gain, Net

 

		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands)
Corporate—Straight Path Communications Inc. class action legal fees		$	(3,157	)		$	(973	)		$	(5,921	)		$	(5,082	)
Corporate—Straight Path Communications Inc. class action insurance claims			—				337				2,869				3,325
Corporate—other			—				—				12				—
Fintech—write-off of intangible asset			(74	)			—				(74	)			—
Fintech—write-off of contingent consideration liability			—				—				—				1,565
Fintech— government grants			—				—				—				382
net2phone—write-off of contingent consideration liability			—				—				73				—
Traditional Communications— cable telephony customer indemnification claim			—				(3,912	)			—				(3,925	)
Traditional Communications— contingent consideration liability			—				(216	)			—				(216	)
Traditional Communications—other			—				—				—				3
Total other operating expense, net		$	(3,231	)		$	(4,764	)		$	(3,041	)		$	(3,948	)

 

Straight Path Communications Inc. Class Action

 

As discussed in Note 16, the Company (as well as other defendants) was named in a 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, 2024 and 2023. On October 3, 2023, the Court of Chancery of the State of Delaware dismissed all claims against the Company, and found that, contrary to the plaintiffs’ allegations, the class suffered no damages. The plaintiffs will have 30 days from entry of the final order to file an appeal.

 

21

 

 

Contingent Consideration Liabilities

 

In January 2024, the Company determined that the requirement for a contingent consideration payment related to an acquisition in a prior period would not be met. In addition, in September 2022, the Company determined that the requirements for a portion of the contingent consideration payments related to the Leaf acquisition would not be met. The Company recognized gains on the write-off of these contingent consideration payment obligations in the net2phone and Fintech segments. 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 $0.2 million.

 

Government Grants

 

In the three and nine months ended April 30, 2023, 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 $3.9 million, which was recorded as an expense in the three and nine months ended April 30, 2023.

 

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 $25.0 million. As of July 28, 2023, IDT Telecom and TD Bank, N.A. amended certain terms of the credit agreement. IDT Telecom may use the proceeds to finance working capital requirements and for certain closing costs of the facility. At April 30, 2024 and July 31, 2023, there were no amounts outstanding under this facility. In the nine months ended April 30, 2024 and 2023, IDT Telecom borrowed and repaid an aggregate of $32.9 million and $2.4 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 secured overnight financing rate published by the Federal Reserve Bank of New York plus 10 basis points, plus depending upon IDT Telecom’s leverage ratio as computed for the most recent fiscal quarter, 125 to 175 basis points. Interest is payable monthly, and all outstanding principal and any accrued and unpaid interest is due on May 16, 2026. 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, 2024 and July 31, 2023, IDT Telecom was in compliance with all of the covenants.

 

Note 12—Equity

 

Dividend Payments

 

In March 2024, the Company’s Board of Directors initiated a quarterly cash dividend of $0.05 per share on the Company’s Class A and Class B common stock. In the three and nine months ended April 30, 2024, the Company paid aggregate cash dividends of $1.3 million on its Class A and Class B common stock.

 

In May 2024, the Company’s Board of Directors declared a dividend of $0.05 per share to holders of the Company’s Class A and Class B common stock. The dividend will be paid on or about June 17, 2024 to stockholders of record as of the close of business on June 10, 2024.

 

2024 Equity Incentive Plan

 

On December 13, 2023, the Company’s stockholders approved the adoption of the Company’s 2024 Equity Incentive Plan (the “2024 Plan”), which is intended to provide incentives to officers, employees, directors, and consultants of the Company, including stock options, stock appreciation rights, deferred stock units (“DSUs”), and restricted stock, from and after September 16, 2024. There are 250,000 shares of the Company’s Class B common stock reserved for the grant of awards under the 2024 Plan.

 

2015 Stock Option and Incentive Plan

 

On December 13, 2023, the Company’s stockholders approved an amendment to the Company’s 2015 Stock Option and Incentive Plan (the “2015 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 250,000 shares. The 2015 Plan is scheduled to expire on September 16, 2024.

 

In each of the nine months ended April 30, 2024 and 2023, the Company received cash from the exercise of stock options of $0.2 million for which the Company issued 12,500 shares of its Class B common stock in each of the periods.

 

22

 

 

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 8.0 million shares in the aggregate. In the nine months ended April 30, 2024, the Company repurchased 204,107 shares of its Class B common stock for an aggregate purchase price of $5.7 million. In the nine months ended April 30, 2023, the Company repurchased 280,130 shares of its Class B common stock for an aggregate purchase price of $7.5 million. At April 30, 2024, 4.5 million shares remained available for repurchase under the stock repurchase program.

 

In the nine months ended April 30, 2024 and 2023, the Company paid $1.5 million and $0.3 million, respectively, to repurchase 41,994 and 13,547 shares, respectively, of the Company’s Class B common stock that were tendered by employees of the Company to satisfy the employees’ tax withholding obligations in connection with the vesting of DSUs, the lapsing of restrictions on restricted stock, and shares issued for bonus payments. Such shares were repurchased by the Company based on their fair market value as of the close of business on the trading day immediately prior to the vesting date.

 

Deferred Stock Units Equity Incentive Program

 

On November 30, 2022, the Company adopted an equity incentive program (under the 2015 Plan) in the form of grants of DSUs that, upon vesting, will entitle the grantees to receive shares of the Company’s Class B common stock. 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 the Company’s 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 February 21, 2024, the second vesting date under the program, in accordance with the program and based on certain elections made by grantees, the Company issued 53,706 shares of its Class B common stock for vested DSUs. Subject to continued full time employment or other services to the Company, the remaining 147,540 DSUs are scheduled to vest on February 25, 2025, the third and final vesting date under the program.

 

Amended and Restated Employment Agreement with Abilio (“Bill”) Pereira

 

  On December 21, 2023, the Company entered into an Amended and Restated Employment Agreement with Bill Pereira, the Company’s President and Chief Operating Officer. The agreement provides for, among other things, certain equity grants, including 23,500 DSUs that, upon vesting, represent the right to receive shares of the Company’s Class B common stock, and 50,000 shares of Class B common stock of net2phone 2.0, as well as a contingent bonus subject to the completion of certain financial milestones as set forth in the agreement. In the three and nine months ended April 30, 2024, one of these milestones was achieved, for which the Company issued 39,155 shares of its Class B common stock to Mr. Pereira with a value of $1.5 million for the bonus payment. In the three and nine months ended April 30, 2024, the Company recorded aggregate stock-based compensation expense of $1.5 million and $3.0 million, respectively, related to these equity grants and the contingent bonus, which is included in “Selling, general and administrative expense” in the accompanying consolidated statements of income. At April 30, 2024, there was an aggregate of $0.2 million of total unrecognized compensation cost related to Mr. Pereira’s non-vested DSUs, which is expected to be recognized over the remaining vesting period that ends in February 2025. Also at April 30, 2024, there was an aggregate of $0.9 million of total unrecognized compensation cost related to the probable portion of Mr. Pereira’s contingent bonus, which is expected to be recognized over the estimated period that the Company expects the milestones to be achieved, which ends in the first quarter of fiscal 2025.

 

Exchange of NRS Shares for the Company’s Shares

 

In January 2024, three management employees of NRS exchanged shares of NRS’ Class B common stock that they held for shares of the Company’s Class B common stock with an equal value. The NRS shares in the exchange represented an aggregate of 1.25% of NRS’ outstanding shares, which were exchanged for an aggregate of 192,433 shares of the Company’s Class B common stock. The Company accounted for the exchange as an equity transaction and recorded a decrease in “Noncontrolling interests” and an increase in “Additional paid-in capital” of $0.1 million, based on the carrying amount of the 1.25% noncontrolling interest in NRS.

 

Restricted net2phone 2.0 Common Stock Repurchased from Employees

 

In January 2024, the restrictions lapsed on the 0.5 million restricted shares of net2phone 2.0 Class B common stock that were granted in December 2020 to each of Howard S. Jonas and Shmuel Jonas, the Company’s Chief Executive Officer. In addition, in January 2024, Bill Pereira was granted 50,000 shares of net2phone 2.0 Class B common stock in connection with the agreement described above. The Company withheld a portion of these shares representing an aggregate of 4.5% of the outstanding shares of net2phone 2.0 with an aggregate fair value of $3.6 million to satisfy the grantees’ tax withholding obligations in connection with the lapsing of restrictions on restricted stock or the grant of shares. The fair value per share of the net2phone 2.0 Class B common stock was based on a valuation of the business enterprise using a market approach and income approach. The Company recorded an increase in “Noncontrolling interests” of $53,000 and a decrease in “Additional paid-in capital” of $3.61 million, and an offsetting income tax withholding liability of $3.6 million.

 

23

 

 

Note 13—Redeemable Noncontrolling Interest

 

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 (“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.

 

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:

 

Schedule of Net Income Attributable to Mezzanine Equity’s Noncontrolling Interest

		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
			(in thousands)
Net income of NRS attributable to the mezzanine equity’s noncontrolling interest		$	98			$	60			$	319			$	258

 

Note 14—Earnings Per Share

 

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.

 

The weighted-average number of shares used in the calculation of basic and diluted earnings per share attributable to the Company’s common stockholders consists of the following:

Schedule of Weighted-average Number of Shares Used in the Calculation of Basic and Diluted Earnings Per Share

 

		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands)
Basic weighted-average number of shares			25,345				25,518				25,233				25,544
Effect of dilutive securities:
Stock options			—				7				1				9
Non-vested restricted Class B common stock			171				87				146				36
Diluted weighted-average number of shares			25,516				25,612				25,380				25,589

 

There were no shares excluded from the calculation of diluted earnings per share in the three and nine months ended April 30, 2024 and 2023.

 

Note 15—Accumulated Other Comprehensive Loss

 

The accumulated balances for each classification of other comprehensive income (loss) were as follows:

Schedule of Accumulated Balances for Each Classification of Other Comprehensive Income Income (Loss)

 

		Unrealized Loss on Available-for-Sale Securities				Foreign Currency Translation				Accumulated Other Comprehensive Loss
		(in thousands)
Balance, July 31, 2023		$	(645	)		$	(16,547	)		$	(17,192	)
Other comprehensive income (loss) attributable to IDT Corporation			77				(128	)			(51	)
Balance, April 30, 2024		$	(568	)		$	(16,675	)		$	(17,243	)

 

24

 

 

Note 16—Commitments and Contingencies

 

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 alleged 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 sought, 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. The trial was held in August and December 2022, and closing arguments were presented on May 3, 2023. On October 3, 2023, the Court of Chancery of the State of Delaware dismissed all claims against the Company, and found that, contrary to the plaintiffs’ allegations, the class suffered no damages. The plaintiffs will have 30 days from entry of the final order to file an appeal.

 

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 USAC’s final decision imposed a $2.9 million charge on the Company for the Federal Telecommunications Relay Service (“TRS”) Fund. The Company has appealed the USAC’s final decision to the FCC and does not intend to remit payment for the TRS Fund fees unless and until a negative decision on its appeal has been issued. The Company has made certain changes to its filing policies and procedures for years that remain potentially under audit. At April 30, 2024 and July 31, 2023, the Company’s accrued expenses included $23.8 million and $26.8 million, respectively, for FCC-related regulatory fees for the year covered by the audit, as well as prior and subsequent years.

 

25

 

 

Purchase Commitments

 

At April 30, 2024, the Company had purchase commitments of $3.2 million primarily for equipment and services.

 

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, 2024, the Company had aggregate performance bonds of $29.0 million outstanding.

 

Note 17—Other Expense, Net

 

Other expense, net consists of the following:

Schedule of Other Income (Expense), Net

 

		Three Months Ended April 30,								Nine Months Ended April 30,
		2024				2023				2024				2023
		(in thousands)
Foreign currency transaction (losses) gains		$	(2,302	)		$	893			$	(3,291	)		$	2,344
Equity in net loss of investee			(871	)			(768	)			(2,732	)			(2,143	)
Losses on investments, net			(78	)			(480	)			(280	)			(2,649	)
Other			(22	)			(27	)			(23	)			(162	)
Total other expense, net		$	(3,273	)		$	(382	)		$	(6,326	)		$	(2,610	)

 

Note 18—Income Taxes

 

As of April 30, 2024, the Company’s best estimate of the effective tax rate expected to be applicable for fiscal 2024 was 25.9% compared to 27.0% at July 31, 2023. The change in the estimated effective tax rate was mainly due to differences in the amount of taxable income earned in the various taxing jurisdictions.

 

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 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 the three and nine months ended April 30, 2024, the Company contributed cash of $1.1 million to the Company’s 401(k) Plan for matching contributions.

 

Note 20—Recently Issued Accounting Standards Not Yet Adopted

 

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures, primarily related to the rate reconciliation and income taxes paid disclosures as well as certain other amendments to income tax disclosures. Entities will be required on an annual basis to consistently categorize and provide greater disaggregation of rate reconciliation information and further disaggregate their income taxes paid. The Company will adopt the amendments in this ASU for its fiscal year beginning on August 1, 2025. The amendments in this ASU should be applied on a prospective basis, although retrospective application is permitted. The Company is evaluating the impact that this ASU will have on its consolidated financial statements.

 

In December 2023, the FASB issued ASU No. 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60), Accounting for and Disclosure of Crypto Assets, that changes the accounting for crypto assets from a cost-less-impairment model to fair value, with changes recognized in net income each reporting period. The ASU also requires enhanced disclosures including, among other things, the name, cost basis, fair value, and number of units for each significant holding, and a rollforward of annual activity including additions, dispositions, gains, and losses. The Company will adopt the amendments in this ASU for its fiscal year beginning on August 1, 2025. The ASU requires a cumulative-effect adjustment to the opening balance of retained earnings as of adoption. The Company is evaluating the impact that this ASU will have on its consolidated financial statements.

 

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, to improve the disclosures about reportable segments and add more detailed information about a reportable segment’s expenses. The amendments in the ASU require public entities to disclose on an annual and interim basis significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, other segment items by reportable segment, the title and position of the CODM, and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. The ASU does not change the definition of a segment, the method for determining segments, the criteria for aggregating operating segments into reportable segments, or the current specifically enumerated segment expenses that are required to be disclosed. The Company will adopt the amendments in this ASU for its fiscal year beginning on August 1, 2024, and for interim periods beginning on August 1, 2025, applied retrospectively to all prior periods presented. The Company is evaluating the impact that this ASU will have on its consolidated financial statements.

 

In June 2022, the FASB issued 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.

 

 

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, 2023 (or the 2023 Form 10-K) 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 2023 Form 10-K. 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 2023 Form 10-K.

 

Recently Issued Accounting Standards Not Yet Adopted

 

In December 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures, primarily related to the rate reconciliation and income taxes paid disclosures as well as certain other amendments to income tax disclosures. Entities will be required on an annual basis to consistently categorize and provide greater disaggregation of rate reconciliation information and further disaggregate their income taxes paid. We will adopt the amendments in this ASU for our fiscal year beginning on August 1, 2025. The amendments in this ASU should be applied on a prospective basis, although retrospective application is permitted. We are evaluating the impact that this ASU will have on our consolidated financial statements.

 

In December 2023, the FASB issued ASU No. 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60), Accounting for and Disclosure of Crypto Assets, that changes the accounting for crypto assets from a cost-less-impairment model to fair value, with changes recognized in net income each reporting period. The ASU also requires enhanced disclosures including, among other things, the name, cost basis, fair value, and number of units for each significant holding, and a rollforward of annual activity including additions, dispositions, gains, and losses. We will adopt the amendments in this ASU for our fiscal year beginning on August 1, 2025. The ASU requires a cumulative-effect adjustment to the opening balance of retained earnings as of adoption. We are evaluating the impact that this ASU will have on our consolidated financial statements.

 

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, to improve the disclosures about reportable segments and add more detailed information about a reportable segment’s expenses. The amendments in the ASU require public entities to disclose on an annual and interim basis significant segment expenses that are regularly provided to the chief operating decision maker, or CODM, and included within each reported measure of segment profit or loss, other segment items by reportable segment, the title and position of the CODM, and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. The ASU does not change the definition of a segment, the method for determining segments, the criteria for aggregating operating segments into reportable segments, or the current specifically enumerated segment expenses that are required to be disclosed. We will adopt the amendments in this ASU for our fiscal year beginning on August 1, 2024, and for interim periods beginning on August 1, 2025, applied retrospectively to all prior periods presented. We are evaluating the impact that this ASU will have on our consolidated financial statements.

 

In June 2022, the FASB issued 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.

 

 

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.

 

As of April 30, 2024, we owned 94.0% of the outstanding shares of our subsidiary, net2phone 2.0, Inc., or net2phone 2.0, which owns and operates the net2phone segment, and 81.2% of the outstanding shares of National Retail Solutions, or NRS, and, on a fully diluted basis assuming all the vesting criteria related to various rights granted have been met and other assumptions, we would own 90.1% of net2phone 2.0 and 78.9% of NRS.

 

From and after August 1, 2023, we include depreciation and amortization in “Direct cost of revenues” and “Selling, general and administrative” expense. Prior to August 1, 2023, depreciation and amortization was a separate caption in the consolidated statements of income. In addition, from and after August 1, 2023, we are reporting gross profit and gross margin percentage in our “Results of Operations” in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP.

 

From and after February 1, 2024, we reclassified most of our technology and development expenses from “Selling, general and administrative” expense to a new “Technology and development” expense caption in the consolidated statements of income and reclassified an amount that was immaterial in all periods to “Direct cost of revenues.” “Technology and development” expense consists primarily of personnel-related expenses for employees involved in the research, design, development, and maintenance of both new and existing technology products and services, including salaries, benefits, and stock-based compensation. “Technology and development” expense also includes costs for software licenses, subscription services, and other companywide technology tools dedicated for use by our technology and development teams. The costs of third-party contractors that support our technology and development are also included. “Technology and development” expense also includes the costs of product and engineering teams used to support the development of both internal infrastructure and internal-use software, to the extent such costs do not qualify for capitalization. The expenses reclassified to “Direct cost of revenues” are the costs of cloud computing arrangements hosted by a vendor in the production environment incurred by the net2phone segment and NRS, and net2phone’s colocation costs for data centers where net2phone is not fully operational in the cloud. Finally, depreciation and amortization of capitalized internal use software costs was reclassified from “Selling, general and administrative” expense to “Technology and development” expense.

 

The following table shows the amounts that were reclassified in the three and nine months ended April 30, 2023 to conform to the current year’s presentation:

 

		Three Months Ended April 30, 2023				Nine Months Ended April 30, 2023
		(in millions)
Selling, general and administrative expense reclassified to:
Direct cost of revenues		$	0.3			$	0.9
Technology and development expense		$	8.9			$	26.3
Depreciation and amortization expense reclassified to:
Direct cost of revenues		$	1.2			$	3.3
Selling, general and administrative expense		$	0.8			$	2.1
Technology and development expense		$	3.2			$	9.6

 

 

Depreciation and amortization expense included in our business segments was as follows:

 

(in millions)		National Retail Solutions				Fintech				net2phone				Traditional Communications				Corporate				Total
Three Months Ended April 30, 2024
Depreciation and amortization:
Included in “Direct cost of revenues”		$	0.5			$	—			$	0.6			$	0.2			$	—			$	1.3
Included in “Selling, general and administrative” expense			0.1				—				0.3				0.2				—				0.6
Included in “Technology and development” expense			0.3				0.6				0.7				1.6				—				3.2
Three Months Ended April 30, 2023
Depreciation and amortization:
Included in “Direct cost of revenues”		$	0.4			$	—			$	0.6			$	0.2			$	—			$	1.2
Included in “Selling, general and administrative” expense			—				0.3				0.2				0.3				—				0.8
Included in “Technology and development” expense			0.2				0.4				0.6				2.0				—				3.2
Nine Months Ended April 30, 2024
Depreciation and amortization:
Included in “Direct cost of revenues”		$	1.5			$	0.1			$	1.8			$	0.5			$	—			$	3.9
Included in “Selling, general and administrative” expense			0.1				0.4				0.7				0.6				—				1.8
Included in “Technology and development” expense			0.8				1.6				2.1				5.0				—				9.5
Nine Months Ended April 30, 2023
Depreciation and amortization:
Included in “Direct cost of revenues”		$	1.0			$	0.1			$	1.6			$	0.6			$	—			$	3.3
Included in “Selling, general and administrative” expense			0.1				0.9				0.8				0.3				—				2.1
Included in “Technology and development” expense			0.5				1.0				1.8				6.3				—				9.6

 

 

Explanation of Performance Metrics

 

Our results of operations discussion includes the following performance metrics:

 

	●	for 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 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 have not been fully installed by the end of the month. 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 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.

 

 

Three and Nine Months Ended April 30, 2024 Compared to Three and Nine Months Ended April 30, 2023

 

National Retail Solutions Segment

 

NRS, which represented 8.6% and 6.0% of our total revenues in the three months ended April 30, 2024 and 2023, respectively, and 8.4% and 6.1% of our total revenues in the nine months ended April 30, 2024 and 2023, 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
		2024				2023				$/#				%				2024				2023				$/#				%
		(in millions)
Revenues:
Recurring		$	24.0			$	16.5			$	7.5				45.4	%		$	70.2			$	52.6			$	17.6				33.4	%
Other			1.7				1.6				0.1				9.8				4.7				4.6				0.1				3.1
Total revenues			25.7				18.1				7.6				42.3				74.9				57.2				17.7				31.0
Direct cost of revenues			(3.6	)			(3.1	)			0.5				16.2				(9.5	)			(8.1	)			1.4				18.3
Gross profit			22.1				15.0				7.1				47.6				65.4				49.1				16.3				33.1
Selling, general and administrative			(15.6	)			(11.6	)			4.0				35.0				(44.5	)			(32.9	)			11.6				34.9
Technology and development			(1.7	)			(1.3	)			0.4				28.5				(5.3	)			(3.5	)			1.8				52.6
Income from operations		$	4.8			$	2.1			$	2.7				129.4	%		$	15.6			$	12.7			$	2.9				22.8	%
Gross margin percentage			86.1	%			83.0	%			3.1	%							87.3	%			85.9	%			1.4	%

 

		April 30,								Change
		2024				2023				#				%
			(in thousands)
Active POS terminals			30.3				23.9				6.4				27	%
Payment processing accounts			19.5				14.1				5.4				38	%

 

Revenues. Revenues increased in the three and nine months ended April 30, 2024 compared to the similar periods in fiscal 2023 driven primarily by revenue growth from NRS’ merchant services, 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, 2024 compared to the similar periods in fiscal 2023 primarily due to the increase 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, 2024 compared to the similar periods in fiscal 2023 primarily due to increases in sales commissions, employee compensation, and bad debt expense. As a percentage of NRS’ revenue, NRS’ selling, general and administrative expense decreased to 60.9% from 64.1% in the three months ended April 30, 2024 and 2023, respectively, and increased to 59.4% from 57.6% in the nine months ended April 30, 2024 and 2023, respectively.

 

Technology and Development. Technology and development expense increased in the three and nine months ended April 30, 2024 compared to the similar periods in fiscal 2023 primarily due to increases in employee compensation and consulting expense.

 

 

Fintech Segment

 

Fintech, which represented 10.5% and 7.3% of our total revenues in the three months ended April 30, 2024 and 2023, respectively, and 9.6% and 6.6% of our total revenues in the nine months ended April 30, 2024 and 2023, respectively, is comprised of: (i) BOSS Money, a provider of international money remittance and related value/payment transfer services; and (ii) 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 April 30,								Change								Nine months ended April 30,								Change
		2024				2023				$/#				%				2024				2023				$/#				%
		(in millions)
Revenues:
BOSS Money		$	27.6			$	19.5			$	8.1				41.9	%		$	76.9			$	54.6			$	22.3				40.7	%
Other			3.9				2.3				1.6				67.7				9.2				7.4				1.8				25.2
Total revenues			31.5				21.8				9.7				44.7				86.1				62.0				24.1				38.8
Direct cost of revenues			(14.2	)			(9.2	)			5.0				54.1				(37.9	)			(25.6	)			12.3				47.9
Gross profit			17.3				12.6				4.7				37.8				48.2				36.4				11.8				32.5
Selling, general and administrative			(15.3	)			(12.1	)			3.2				26.7				(43.7	)			(33.6	)			10.1				29.9
Technology and development			(2.5	)			(1.8	)			0.7				37.3				(7.1	)			(5.3	)			1.8				33.5
Other operating (expense) gains			(0.1	)			—				0.1				nm				(0.1	)			1.9				2.0				103.8
(Loss) income from operations		$	(0.6	)		$	(1.3	)		$	0.7				58.0	%		$	(2.7	)		$	(0.6	)		$	(2.1	)			(336.2	)%
Gross margin percentage			54.9	%			57.6	%			(2.7	)%							56.0	%			58.7	%			(2.7	)%

 

nm—not meaningful

 

Revenues. Revenues from BOSS Money increased in the three and nine months ended April 30, 2024 compared to the similar periods in fiscal 2023 primarily because of increased transaction volume in BOSS Money’s retail and digital channels. BOSS Money continues to benefit from cross-marketing to BOSS Revolution Calling customers, the expansion of its retail agent network, and enhanced user-experience within the BOSS Money and BOSS Calling apps.

 

Fintech’s other revenues increased in the three and nine months ended April 30, 2024 compared to the similar periods in fiscal 2023 primarily because of increases in IDT Financial Services’ revenues.

 

Direct Cost of Revenues. Direct cost of revenues increased in the three and nine months ended April 30, 2024 compared to the similar periods in fiscal 2023 primarily due to increases in BOSS Money’s and IDT Financial Services’ direct cost of revenues, which reflected the increase in revenues.

 

Selling, General and Administrative. Selling, general and administrative expense increased in the three and nine months ended April 30, 2024 compared to the similar periods in fiscal 2023 primarily due to increases in debit and credit card processing charges, employee compensation, bank fees, and marketing expense. 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 48.4% from 55.2% in the three months ended April 30, 2024 and 2023, respectively, and decreased to 50.8% from 54.3% in the nine months ended April 30, 2024 and 2023, respectively.

 

Technology and Development. Technology and development expense increased in the three and nine months ended April 30, 2024 compared to the similar periods in fiscal 2023 primarily due to increases in employee compensation and depreciation and amortization expense.

 

Other Operating (Expense) Gains.  In March 2024, we completed a portion of the integration of the Leaf Wallet platform into the BOSS Money app, including replacing the Leaf tradename with BOSS Money. The Leaf tradename balance of $0.1 million was written-off in the three months ended April 30, 2024. In the nine months ended April 30, 2023, Leaf received payments of $0.3 million 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.

 

net2phone Segment

   

The net2phone segment, which represented 6.9% and 6.2% of our total revenues in the three months ended April 30, 2024 and 2023, respectively, and 6.8% and 5.7% of our total revenues in the nine months ended April 30, 2024 and 2023, respectively, is comprised of net2phone’s integrated cloud communications and contact center services.

 

		Three months ended April 30,								Change								Nine months ended April 30,								Change
		2024				2023				$/#				%				2024				2023				$/#				%
		(in millions)
Revenues:
Subscription		$	20.1			$	17.1			$	3.0				17.1	%		$	57.9			$	49.0			$	8.9				18.2	%
Other			0.6				1.3				(0.7	)			(50.4	)			3.1				4.1				(1.0	)			(25.9	)
Total revenues			20.7				18.4				2.3				12.4				61.0				53.1				7.9				14.7
Direct cost of revenues			(4.3	)			(3.8	)			0.5				12.4				(12.7	)			(11.2	)			1.5				13.2
Gross profit			16.4				14.6				1.8				12.4				48.3				41.9				6.4				15.1
Selling, general and administrative			(13.0	)			(12.5	)			0.5				4.7				(39.5	)			(36.5	)			3.0				8.2
Technology and development			(2.8	)			(2.5	)			0.3				12.1				(8.0	)			(7.4	)			0.6				7.0
Severance			(0.1	)			—				0.1				nm				(0.1	)			—				0.1				nm
Other operating gain			—				—				—				—				0.1				—				0.1				nm
Income (loss) from operations		$	0.5			$	(0.4	)		$	0.9				226.2	%		$	0.8			$	(2.0	)		$	2.8				141.6	%
Gross margin percentage			79.2	%			79.2	%			—	%							79.2	%			78.9	%			0.3	%

 

nm—not meaningful

 

		April 30,								Change
		2024				2023				#				%
		(in thousands)
Seats served			384				340				44				13	%

 

 

Revenues. net2phone’s revenues increased in the three and nine months ended April 30, 2024 compared to the similar periods in fiscal 2023 driven primarily by the growth in subscription revenue in the U.S. and Latin American markets, which reflected the increase in seats served at April 30, 2024 compared to April 30, 2023.

 

Direct Cost of Revenues. Direct cost of revenues increased in the three and nine months ended April 30, 2024 compared to the similar periods in fiscal 2023 primarily due to the increase in revenues, with the largest increase in the U.S. markets. 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, 2024 compared to the similar periods in fiscal 2023 primarily due to increases in employee compensation and sales commissions. As a percentage of net2phone’s revenues, net2phone’s selling, general and administrative expense decreased to 63.1% from 67.7% in the three months ended April 30, 2024 and 2023, respectively, and decreased to 64.7% from 68.7% in the nine months ended April 30, 2024 and 2023, 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 expense will remain a significant percentage of net2phone’s revenues for the foreseeable future.

 

Technology and Development. Technology and development expense increased in the three and nine months ended April 30, 2024 compared to the similar periods in fiscal 2023 primarily due to increases in employee compensation and depreciation and amortization expense.

 

Other Operating Gain. In the nine months ended April 30, 2024, we determined that the requirement for a contingent consideration payment related to an acquisition in a prior period would not be met. We recognized a gain of $0.1 million on the write-off of this contingent consideration payment obligation.

   

Traditional Communications Segment

   

The Traditional Communications segment, which represented 74.0% and 80.5% of our total revenues in the three months ended April 30, 2024 and 2023, respectively, and 75.2% and 81.6% of our total revenues in the nine months ended April 30, 2024 and 2023, respectively, includes: (i) IDT Digital Payments, which enables customers to transfer airtime and bundles of airtime, messaging, and data to international and domestic mobile accounts; (ii) BOSS Revolution Calling, an international long-distance calling service marketed primarily to immigrant communities in the United States and Canada; and (iii) 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.

   

 

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 directly 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 April 30,								Change								Nine months ended April 30,								Change
		2024				2023				$/#				%				2024				2023				$/#				%
		(in millions)
Revenues:
IDT Digital Payments		$	101.6			$	101.0			$	0.6				0.5	%		$	301.2			$	316.2			$	(15.0	)			(4.8	)%
BOSS Revolution Calling			63.2				77.6				(14.4	)			(18.5	)			201.2				246.7				(45.5	)			(18.5	)
IDT Global			50.1				54.5				(4.4	)			(8.1	)			150.8				174.7				(23.9	)			(13.7	)
Other			6.8				7.9				(1.1	)			(13.2	)			21.8				25.1				(3.3	)			(13.0	)
Total revenues			221.7				241.0				(19.3	)			(8.0	)			675.0				762.7				(87.7	)			(11.5	)
Direct cost of revenues			(180.5	)			(195.6	)			(15.1	)			(7.7	)			(548.9	)			(623.6	)			(74.7	)			(12.0	)
Gross profit			41.2				45.4				(4.2	)			(9.3	)			126.1				139.1				(13.0	)			(9.3	)
Selling, general and administrative			(22.7	)			(21.8	)			0.9				4.4				(64.7	)			(67.7	)			(3.0	)			(4.3	)
Technology and development			(5.6	)			(6.5	)			(0.9	)			(13.3	)			(17.6	)			(19.6	)			(2.0	)			(10.3	)
Severance			(0.4	)			(0.1	)			0.3				190.3				(1.3	)			(0.5	)			0.8				181.5
Other operating expenses			—				(4.1	)			(4.1	)			(100.0	)			—				(4.1	)			(4.1	)			(100.0	)
Income from operations		$	12.5			$	12.9			$	(0.4	)			(3.5	)%		$	42.5			$	47.2			$	(4.7	)			(10.0	)%
Gross margin percentage			18.6	%			18.9	%			(0.3	)%							18.7	%			18.2	%			0.5	%
Minutes of use:
BOSS Revolution Calling			418				550				(132	)			(23.9	)%			1,372				1,767				(395	)			(22.4	)%
IDT Global			1,400				1,434				(34	)			(2.4	)			4,239				4,756				(517	)			(10.9	)

 

Revenues. Revenues from IDT Digital Payments slightly increased in the three months ended April 30, 2024 compared to the similar period in fiscal 2023 primarily from an increase in revenues in the direct-to-consumer channel. Revenues from IDT Digital Payments decreased in the nine months ended April 30, 2024 compared to the similar period in fiscal 2023 primarily from the deterioration of a key international corridor that was particularly impactful to revenues in the wholesale channel, however, this corridor has not been a significant factor since the second quarter of fiscal 2024.

 

Revenues and minutes of use from BOSS Revolution Calling decreased in the three and nine months ended April 30, 2024 compared to the similar periods in fiscal 2023. 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, 2024 compared to the similar periods in fiscal 2023 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, 2024 compared to the similar periods in fiscal 2023 primarily due to the decreases in minutes of use and revenues.

 

Selling, General and Administrative. Selling, general and administrative expense increased in the three months ended April 30, 2024 compared to the similar period in fiscal 2023 primarily due to increases in stock-based compensation, marketing expense, and employee compensation, partially offset by decreases in sales commissions, postage and printing expense, and debit and credit card processing charges. Selling, general and administrative expense decreased in the nine months ended April 30, 2024 compared to the similar period in fiscal 2023 primarily due to decreases in sales commissions, employee compensation, and debit and credit card processing charges, partially offset by an increase in stock-based compensation. As a percentage of Traditional Communications’ revenue, Traditional Communications’ selling, general and administrative expense increased to 10.2% from 9.0% in the three months ended April 30, 2024 and 2023, respectively, and increased to 9.6% from 8.9% in the nine months ended April 30, 2024 and 2023, respectively.

 

Technology and Development. Technology and development expense decreased in the three and nine months ended April 30, 2024 compared to the similar periods in fiscal 2023 primarily due to decreases in depreciation and amortization and software license and maintenance expense.

 

 

Severance Expense. In the three months ended April 30, 2024 and 2023, Traditional Communications incurred severance expense of $0.4 million and $0.1 million, respectively, and in the nine months ended April 30, 2024 and 2023, Traditional Communications incurred severance expense of $1.3 million and $0.5 million, respectively.

 

Other Operating Expenses. Other operating expenses included $3.9 million in the three and nine months ended April 30, 2023 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. 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
		2024				2023				$				%				2024				2023				$				%
		(in millions)
General and administrative		$	(2.3	)		$	(2.3	)		$	—				0.2	%		$	(8.3	)		$	(6.7	)		$	1.6				23.5	%
Severance			(0.2	)			—				0.2				nm				(0.3	)			—				0.3				nm
Other operating expense, net			(3.2	)			(0.6	)			2.6				396.5				(3.0	)			(1.8	)			1.2				73.0
Loss from operations		$	(5.7	)		$	(2.9	)		$	(2.8	)			(95.4	)%		$	(11.6	)		$	(8.5	)		$	(3.1	)			(37.1	)%

 

nm—not meaningful

 

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 was substantially unchanged in the three months ended April 30, 2024 compared to the similar period in fiscal 2023 primarily because increases in audit and accounting fees and employee compensation were mostly offset by a decrease in stock-based compensation expense. Corporate general and administrative expense increased in the nine months ended April 30, 2024 compared to the similar period in fiscal 2023 primarily because of increases in audit and accounting fees and employee compensation. As a percentage of our consolidated revenues, Corporate general and administrative expense was 0.8% and 0.8% in the three months ended April 30, 2024 and 2023, respectively, and 0.9% and 0.7% in the nine months ended April 30, 2024 and 2023, 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) were named in a class action on behalf of the stockholders of our former subsidiary, Straight Path Communications Inc., or Straight Path. We incurred legal fees of $3.2 million and $1.0 million in the three months ended April 30, 2024 and 2023, respectively, and $5.9 million and $5.1 million in the nine months ended April 30, 2024 and 2023, respectively, related to this action. Also, we recorded offsetting gains from insurance claims for this matter of nil and $0.4 million in the three months ended April 30, 2024 and 2023, respectively, and $2.9 million and $3.3 million in the nine months ended April 30, 2024 and 2023, respectively. On October 3, 2023, the Court of Chancery of the State of Delaware dismissed all claims against us, and found that, contrary to the plaintiffs’ allegations, the class suffered no damages. The plaintiffs will have 30 days from entry of the final order to file an appeal.

   

Consolidated

   

The following is a discussion of our consolidated stock-based compensation expense, and our consolidated income and expense line items below income from operations.

 

Stock-Based Compensation Expense. Total stock-based compensation expense included in consolidated selling, general and administrative expense and technology and development expense was $2.1 million and $1.7 million in the three months ended April 30, 2024 and 2023, respectively, and $5.4 million and $3.5 million in the nine months ended April 30, 2024 and 2023, respectively. The increases in stock-based compensation expense were primarily due to certain equity grants to Bill Pereira, our President and Chief Operating Officer, in the second quarter of fiscal 2024, including deferred stock units, or DSUs, that, upon vesting, represent the right to receive shares of our Class B common stock, and shares of Class B common stock of net2phone 2.0, as well as a contingent bonus subject to the completion of certain financial milestones that may be paid, at Mr. Pereira’s option, in either shares of the Company’s Class B common stock or cash.

 

At April 30, 2024, there was an aggregate of $0.9 million of total unrecognized compensation cost related to Mr. Pereira’s contingent bonus, which is expected to be recognized over the estimated period that we expect the milestones to be satisfied, which ends in the first quarter of fiscal 2025.

 

At April 30, 2024, there was $0.9 million of total unrecognized compensation cost related to non-vested DSUs under our equity incentive program adopted on November 30, 2022, which is being recognized on a graded vesting basis over the requisite service periods that end in February 2025. On February 21, 2024, the second vesting date under the program, in accordance with the program and based on certain elections made by grantees, we issued 53,706 shares of our Class B common stock for vested DSUs. Subject to continued full time employment or other services to us, the remaining 147,540 DSUs are scheduled to vest on February 25, 2025.

 

 

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 lapse in three installments, the first was on June 1, 2024, and the others are June 1, 2026 and June 1, 2027. The estimated fair value of the restricted shares on the grant date was $3.3 million, which is being recognized over the vesting period. At April 30, 2024, unrecognized compensation cost related to NRS’ non-vested Class B common stock was an aggregate of $2.1 million. The unrecognized compensation cost is expected to be recognized over the remaining vesting period that ends in fiscal 2027.

 

		Three months ended April 30,								Change								Nine months ended April 30,								Change
		2024				2023				$				%				2024				2023				$				%
		(in millions)
Income from operations		$	11.4			$	10.4			$	1.0				10.2	%		$	44.6			$	48.8			$	(4.2	)			(8.5	)%
Interest income, net			1.3				0.7				0.6				63.9				3.1				2.0				1.1				57.8
Other expense, net			(3.3	)			(0.4	)			(2.9	)			(756.8	)			(6.3	)			(2.6	)			(3.7	)			(142.4	)
Provision for income taxes			(3.0	)			(3.0	)			—				(0.6	)			(10.9	)			(12.6	)			1.7				13.3
Net income			6.4				7.7				(1.3	)			(18.1	)			30.5				35.6				(5.1	)			(14.1	)
Net income attributable to noncontrolling interests			(0.8	)			(0.8	)			—				7.4				(2.9	)			(3.1	)			0.2				5.0
Net income attributable to IDT Corporation		$	5.6			$	6.9			$	(1.3	)			(19.4	)%		$	27.6			$	32.5			$	(4.9	)			(15.0	)%

   

   

Other Expense, net. Other expense, net consists of the following:

 

		Three months ended April 30,								Nine months ended April 30,
		2024				2023				2024				2023
		(in millions)
Foreign currency transaction (losses) gains		$	(2.3	)		$	0.9			$	(3.3	)		$	2.3
Equity in the net loss of investee			(0.9	)			(0.8	)			(2.7	)			(2.1	)
Losses on investments, net			(0.1	)			(0.5	)			(0.3	)			(2.6	)
Other			—				—				—				(0.2	)
Total		$	(3.3	)		$	(0.4	)		$	(6.3	)		$	(2.6	)

 

We have an investment in shares of convertible preferred stock of a communications company (the equity method investee, or EMI). As of April 30, 2024 and 2023, our ownership was 33.4% and 33.3%, respectively, of the EMI’s outstanding shares on an as converted basis. 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 do not have a controlling interest. We determined that on the dates of the acquisitions of the EMI’s shares, there were differences between our investment in the EMI and our proportional interest in the equity of the EMI of an aggregate of $8.2 million, which represented the share of the EMI’s customer list on the dates of the acquisitions attributed to our interest in the EMI. These basis differences are being amortized over the 6-year estimated life of the customer list. “Equity in the net loss of investee” includes the amortization of equity method basis difference.

 

Provision for Income Taxes. The change in income tax expense in the three and nine months ended April 30, 2024 compared to the similar periods in fiscal 2023 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 months ended April 30, 2024 compared to the similar period in fiscal 2023 was primarily due to the change in the amount attributable to the noncontrolling interests in Sochitel UK Ltd., partially offset by the changes in the amounts attributable to the noncontrolling interests in NRS and the VIE. The change in the net income attributable to noncontrolling interests in the nine months ended April 30, 2024 compared to the similar period in fiscal 2023 was primarily due to changes in amounts attributable to the noncontrolling interests in Sochitel UK Ltd. and net2phone 2.0, partially offset by the changes in the amounts attributable to the noncontrolling interests in NRS and the VIE.

 

 

Liquidity and Capital Resources

 

As of the date of this Quarterly Report, we expect our cash flow from operations and the balance of cash, cash equivalents, debt securities, and current equity investments that we held on April 30, 2024 will be sufficient to meet our currently anticipated working capital and capital expenditure requirements during the twelve-month period ending April 30, 2025.

 

At April 30, 2024, we had cash, cash equivalents, debt securities, and current equity investments of $174.0 million and working capital (current assets in excess of current liabilities) of $130.7 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, 2024, “Cash and cash equivalents” in our consolidated balance sheet included an aggregate of $42.2 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, 2024:

 

Payments Due by Period (in millions)		Total				Less than 1 year				1–3 years				4–5 years				After 5 years
Purchase commitments		$	3.2			$	2.7			$	0.5			$	—			$	—
Connectivity obligations under service agreements			1.0				0.8				0.2				—				—
Operating leases including short-term leases			5.7				3.6				1.6				0.4				0.1
Total (1)		$	9.9			$	7.1			$	2.3			$	0.4			$	0.1

 

(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 $29.0 million in performance bonds, and up to $6.2 million for potential contingent consideration payments 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,
		2024				2023
		(in millions)
Cash flows provided by (used in):
Operating activities		$	49.3			$	28.7
Investing activities			(1.3	)			(26.0	)
Financing activities			(8.4	)			(9.7	)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents			(5.6	)			2.5
Increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents		$	34.0			$	(4.5	)

 

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.

 

Gross trade accounts receivable increased to $45.7 million at April 30, 2024 from $37.7 million at July 31, 2023 primarily due to amounts billed in the nine months ended April 30, 2024 that were greater than collections during the period, partially offset by changes in foreign currency exchange rates.

 

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 $32.1 million at April 30, 2024 from $35.3 million at July 31, 2023 primarily due to decreases in the BOSS Revolution Calling and IDT Digital Payments deferred revenue balances.

 

Customer deposit liabilities at IDT Financial Services decreased to $83.7 million at April 30, 2024 from $86.5 million at July 31, 2023. Our restricted cash and cash equivalents included $84.5 million and $87.3 million at April 30, 2024 and July 31, 2023, respectively, held by the bank.

 

In September 2017, we and certain of our subsidiaries were certified by the New Jersey Economic Development Authority, or NJEDA, as having met the requirements of the Grow New Jersey Assistance Act Tax Credit Program. The program provides for credits against a corporation’s New Jersey corporate business tax liability for maintaining a minimum number of employees in New Jersey, and that tax credits may be sold subject to certain conditions. On June 5, 2023, we received a 2019 tax credit certificate for $1.8 million from the NJEDA. In August 2023, we sold the certificate for cash of $1.6 million.

 

 

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) were named in a class action on behalf of the stockholders of our former subsidiary, Straight Path. On October 3, 2023, the Court of Chancery of the State of Delaware dismissed all claims against us, and found that, contrary to the plaintiffs’ allegations, the class suffered no damages. The plaintiffs will have 30 days from entry of the final order to file an appeal.

 

Investing Activities

   

Our capital expenditures were $13.6 million and $16.0 million in the nine months ended April 30, 2024 and 2023, respectively. We currently anticipate that total capital expenditures in the twelve-month period ending April 30, 2025 will be $17.5 million to $20 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.

 

As of July 27, 2023, the EMI’s shareholders including us agreed to purchase additional shares of the EMI’s convertible preferred stock. We subscribed to purchase additional shares for an aggregate of $1.0 million. In the nine months ended April 30, 2024, we paid $1.0 million to purchase the EMI’s shares. In February 2024, each of the EMI’s shareholders including us agreed to purchase additional shares of the EMI’s convertible preferred stock. We paid an aggregate of $0.5 million in the three months ended April 30, 2024 to purchase the additional shares.

 

In April 2024, each of the EMI’s shareholders including us agreed to purchase additional shares of the EMI’s convertible preferred stock. We paid $0.3 million in May 2024 and we are committed to pay $0.2 million to purchase the additional shares.

 

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 the EMI’s convertible preferred stock. In addition, each of the EMI’s shareholders agreed to purchase additional shares of EMI’s convertible preferred stock, for which we paid $0.2 million in April 2023 and $0.7 million in May 2023 to purchase the additional shares.

 

In January 2024, we acquired certain software and intellectual property for an online ordering platform for $0.1 million.

 

Purchases of debt securities and equity investments were $27.6 million and $44.2 million in the nine months ended April 30, 2024 and 2023, respectively. Proceeds from maturities and sales of debt securities and redemptions of equity investments were $41.5 million and $34.3 million in the nine months ended April 30, 2024 and 2023, respectively.

 

Financing Activities

   

In March 2024, our Board of Directors initiated a quarterly cash dividend of $0.05 per share on our Class A and Class B common stock. In the nine months ended April 30, 2024, we paid aggregate cash dividends of $1.3 million on our Class A and Class B common stock. In May 2024, our Board of Directors declared a dividend of $0.05 per share to holders of our Class A and Class B common stock. The dividend will be paid on or about June 17, 2024 to stockholders of record as of the close of business on June 10, 2024.

 

We distributed cash of $0.1 million and $0.3 million in the nine months ended April 30, 2024 and 2023, respectively, to the noncontrolling interests in certain of our subsidiaries.

 

In the nine months ended April 30, 2024 and 2023, we received proceeds from notes payable of $0.1 million and $0.3 million, respectively.

 

In the nine months ended April 30, 2024 and 2023, we repaid notes payable of $0.1 million and $2.0 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. As of July 28, 2023, IDT Telecom and TD Bank, N.A. amended certain terms of the credit agreement. IDT Telecom may use the proceeds to finance working capital requirements and for certain closing costs of the facility. At April 30, 2024 and July 31, 2023, there were no amounts outstanding under this facility. In the nine months ended April 30, 2024 and 2023, IDT Telecom borrowed and repaid an aggregate of $32.9 million and $2.4 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 secured overnight financing rate published by the Federal Reserve Bank of New York plus 10 basis points, plus depending upon IDT Telecom’s leverage ratio as computed for the most recent fiscal quarter, 125 to 175 basis points. Interest is payable monthly, and all outstanding principal and any accrued and unpaid interest is due on May 16, 2026. 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, 2024, IDT Telecom was in compliance with all of the covenants.

 

In each of the nine months ended April 30, 2024 and 2023, we received cash from the exercise of stock options of $0.2 million for which we issued 12,500 shares of our Class B common stock in each of the periods.

 

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, 2024, we repurchased 204,107 shares of Class B common stock for an aggregate purchase price of $5.7 million. In the nine months ended April 30, 2023, we repurchased 280,130 shares of Class B common stock for an aggregate purchase price of $7.5 million. At April 30, 2024, 4.5 million shares remained available for repurchase under the stock repurchase program.

 

In the nine months ended April 30, 2024 and 2023, we paid $1.5 million and $0.3 million, respectively, to repurchase 41,994 and 13,547 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 the vesting of DSUs, the lapsing of restrictions on restricted stock, and shares issued for bonus payments. 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.

 

In January 2024, the restrictions lapsed on the 0.5 million restricted shares of net2phone 2.0 Class B common stock that were granted in December 2020 to each of Howard S. Jonas and Shmuel Jonas, our Chief Executive Officer. In addition, in January 2024, Bill Pereira was granted 50,000 shares of net2phone 2.0 Class B common stock. We withheld a portion of these shares representing an aggregate of 4.5% of the outstanding shares of net2phone 2.0 with an aggregate fair value of $3.6 million to satisfy the grantees’ tax withholding obligations in connection with the lapsing of restrictions on restricted stock or the grant of shares.

 

  In January 2024, we exchanged an aggregate of 192,433 shares of our Class B common stock with a value of $6.3 million for shares of NRS’ Class B common stock that were held by management employees of NRS representing an aggregate of 1.25% of NRS’ outstanding shares.

   

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 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. 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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risks

 

Foreign Currency Risk

 

Revenues from our international operations were 22% and 28% of our consolidated revenues in the three months ended April 30, 2024 and 2023, respectively, and 24% and 28% of our consolidated revenues in the nine months ended April 30, 2024 and 2023, respectively. 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, 2024 and July 31, 2023, the value of our debt and equity security holdings was an aggregate of $40.9 million and $58.5 million, respectively, which represented 8% and 11% of our total assets at April 30, 2024 and July 31, 2023, 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, 2024.

 

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting during the fiscal quarter ended April 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

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 the 2023 Form 10-K.

 

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 2024:

 

		Total Number of Shares Purchased				Average Price per Share				Total Number of Shares Purchased as part of Publicly Announced Plans or Programs				Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
February 1-29, 2024 (2)			21,229			$	35.63				—				4,566,946
March 1–31, 2024 (2)			20,111			$	37.82				—				4,566,946
April 1–30, 2024			68,846			$	36.58				68,846				4,498,100
Total			110,186			$	36.62				68,846

(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 employees of ours to satisfy the employee’s tax withholding obligations in connection with the lapsing of restrictions on restricted stock and deferred stock units. 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

 

Exhibit Number		Description
31.1*		Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

* Filed herewith.

 

 

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 10, 2024	By:	/s/ SHMUEL JONAS
		Shmuel Jonas Chief Executive Officer
June 10, 2024	By:	/s/ MARCELO FISCHER
		Marcelo Fischer Chief Financial Officer