| ■ | Local Number Portability requirements; and |
| ■ | Consumer protection, including protection from unwanted telemarketing and other calls. |
In Canada, the Canadian Radio-Television and Telecommunications Commission, or CRTC regulates VoIP Service. These regulated services are similar to those regulated in the United States discussed above. Future legislative, judicial, or other regulatory actions could have a negative effect on net2phone’s business. If net2phone becomesWe are subject to additionala variety of other federal, state and international laws and regulations as well as oversight from a variety of governmental agencies and public service commissions. The laws governing our business may change in ways that harm our business. Federal, state, or international governmental agencies administering and enforcing such laws may also choose to interpret and apply them in ways that harm our business. These interpretations are also subject to change. Regulatory action could materially impair or force us to change our business model and may adversely affect our revenue, increase our compliance costs, and reduce our profitability. In addition, governmental agencies such as the Securities and Exchange Commission, Internal Revenue Service, FTC, FCC, and state taxing authorities may conclude that we have violated federal laws, state laws or other rules and regulations, applicableand we could be subject to telecommunications providers we may incur significant litigation and compliance costs, and net2phone may havefines, penalties or other actions that could adversely impact our financial results or our ability to restructure its service offerings, exit certain markets, or raise the price of its services, any of which could cause its services to be less attractive to customers. In addition, future regulatory developments could increase our cost of doing business and limit our growth.
conduct business.
We are subject to legal proceedings in the ordinary course of business that may have a material adverse effect on our business, results of operations, cash flows, or financial condition.
Various legal proceedings that have arisen or may arise in the ordinary course of business have not been finally adjudicated, which may have a material adverse effect on our results of operations, cash flows, or financial condition (see Note 23 to our Consolidated Financial Statements in Item 38 to Part I “Legal Proceedings” included elsewhere inII of this Annual Report).
Our telecommunications services are required to comply with industry standards, FCC regulations, privacy laws as well as certain state and local jurisdiction specific regulations. Failure to comply with existing laws and any new laws that may become applicable to us may subject us to penalties, increase our operation costs, and may also require us to modify existing products and/or service.
The acceptance of telecommunications services is dependent upon our meeting certain industry standards. We are required to comply with certain rules and regulations of the FCC regarding safety standards. Standards are continuously being modified and replaced. As standards evolve, we may be required to modify our existing products or develop and support new versions of our products. We must comply with certain federal, state, and local requirements regarding how we interact with our customers, including marketing practices, consumer protection, privacy, and billing issues, the provision of emergency 911 service, and the quality of service we provide to our customers. The failure of our products and services to comply, or delays in compliance with various existing and evolving standards could delay future offerings and impact our revenues and profitability. Changes to the Universal Service Fund by the FCC or various state Universal Service Funds may require us to increase our costs which could negatively affect revenue and profitability.
We are subject to Federal laws and FCC regulations that require us to protect customer information. While we have protections in place to protect customer information there is no assurance that our systems will not be subject to failure or intentional fraudulent attack. The failure to protect required information could subject us to penalties and diminish the confidence our customers have in our systems, which could negatively affect results. While we try to comply with all applicable data protection laws, regulations, standards, and codes of conduct, as well as our own posted privacy policies and contractual commitments to the extent possible, any failure by us to protect our customers’ privacy and data, including as a result of our systems being compromised by hacking or other malicious or surreptitious activity, could result in a loss of customer confidence in our services and ultimately in a loss of customers, which could materially and adversely affect our business as well as subject us to law suits, civil fines and criminal penalties.
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Governmental entities, class action lawyers, and consumer advocates are reviewing the data collection and use by companies that must maintain such data. Our own requirements as well as regulatory codes of conduct, enforcement actions by regulatory agencies, and lawsuits by other parties could impose additional compliance costs on us as well as subject us to unknown potential liabilities. These evolving laws, rules, and practices may also curtail our current business activities, which may delay or affect our ability to become profitable as well as affect customers and other business opportunities.
In addition, several foreign countries and governmental bodies, including the EU, Brazil, and Canada, have laws and regulations concerning the collection and use of personally identifiable information obtained from their residents, including payment card information, which are often more restrictive than those in the U.S. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure, and security of personally identifiable information, including payment card information identifying, or which may be used to identify, an individual, such as names, email addresses, and, in some jurisdictions, IP addresses, device identifiers, and other data. As we conduct business or become deemed to conduct business in foreign jurisdictions, including through websites that we host that may be available in these locations, we may become subject to those laws and regulations.
We are also subject to privacy and data protection-related obligations in our contracts with our customers and other third parties. Any failure, or perceived failure, to comply with federal, state, or international laws, or to comply with our contractual obligations related to privacy, could result in proceedings or actions against us which could result in significant liability to us as well as harm to our reputation. Additionally, third parties with whom we contract may violate or appear to violate laws or regulations which could subject us to the same risks. Any new laws, regulations, other legal obligations or industry standards, or any changed interpretation of existing laws, regulations or other standards may require us to incur additional costs and restrict our business operations.
Our collection, processing, storage, use, and transmission of personal data could give rise to liabilities because of governmental regulation, conflicting legal requirements, differing views on data privacy, or security breaches.
We engage in electronic billing and processing of our customers using secure transmission of sometimes confidential information over public networks. We have systems and processes in place that are designed to protect consumer information and prevent fraudulent credit card transactions and other security breaches. However, there is no guarantee that such systems and processes will not experience a failure. Our failure to protect against fraud or breaches may subject us to costly breach notification and other mitigation obligations, class action lawsuits, investigations, fines, forfeitures, or penalties from governmental agencies that could adversely affect our operating results. We may be unable to prevent our customers from fraudulently receiving goods and services. Personal data is increasingly subject to legal and regulatory protections around the world, which vary widely in approach and which possibly conflict with one another. In recent years, for example, U.S. legislators and regulatory agencies, such as the FTC, as well as U.S. states have increased their focus on protecting personal data by law and regulation and have increased enforcement actions for violations of privacy and data protection requirements. The CCPA requires, among other things, covered companies to provide new disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information. While we believe that we are not a covered entity under the law, the effects of the CCPA potentially are significant, and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. We may also from time to time be subject to, or face assertions that we are subject to, additional obligations relating to personal data by contract or due to assertions that self-regulatory obligations or industry standards apply to our practices.
We may also experience losses due to customer fraud and theft of service, such as fraudulent credit card transactions. Customers have, in the past, obtained access to our service without paying for monthly service and international toll calls by unlawfully using fraudulently obtained codes. If our existing anti-fraud procedures are not adequate or effective, consumer fraud and theft of service could have a material adverse effect on our business, financial condition, and operating results.
The GDPR and the Data Protection Act in the United Kingdom are intended to protect the privacy and security of personal data, including credit card information that is collected, processed, and transmitted in or from the relevant jurisdiction. We stopped hosting websites in GDPR-complaint countries or countries from which the bulk of business came from countries subject to GDPR. We also took steps to block those countries from accessing any other sites we host. While we do not currently provide services in countries where compliance would be required and are therefore not required to be compliant, if we did provide those services or otherwise were required to become complaint, implementation of and compliance with these laws and regulations may be more costly or take longer than we anticipate, or could otherwise adversely affect our business operations, which could negatively impact our financial position or cash flows.
Additionally, media coverage of data breaches has escalated, in part because of the increased number of enforcement actions, investigations, and lawsuits. As this focus and attention on privacy and data protection increases, we also risk exposure to potential liabilities and costs resulting from compliance with or any failure to comply with applicable legal requirements, conflicts among these legal requirements, or differences in approaches to privacy.
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We could fail to comply with requirements for debit card, credit card, and other digital payment methods, which could have a material adverse effect on our revenues, results of operations, and financial condition.
A significant and increasing portion of our transactions are processed using debit cards, credit cards, and other digital payment methods. The banks, credit card companies, networks, and other payment processing providers impose strict regulatory, compliance, system, and other requirements to participate in such parties’ payment systems. We are required to comply with the privacy provisions of various federal and state privacy statutes and regulations, and the PCI DSS, each of which is subject to change at any time. Compliance with PCI DSS does not guarantee a completely secure environment and notwithstanding the results of this assessment there can be no assurance that payment card brands will not request further compliance assessments or set forth additional requirements to maintain access to credit card processing services. Compliance with PCI DSS is an ongoing effort, and the requirements evolve as new threats are identified. Compliance with these requirements is often difficult and costly, and our failure, or our counterparty’s failure, to comply may result in significant fines or civil penalties, regulatory enforcement action, or liability under or termination of necessary agreements, each of which could have a material adverse effect on our financial position and/or operations and that of our distributors who could be liable as well.
Further, our payment services are subject to stringent requirements by regulators and trade organizations in various jurisdictions. Our payment services unit is subject to federal and state banking regulations, and we are also subject to further regulation by those states in which we are licensed as a money transmitter. We may not be able to comply with all such requirements in a timely manner or remain in compliance. If we are not in compliance, we could be subject to penalties or the termination of our rights to participate in such payment systems or provide such services, which could have a material negative impact on our ability to grow our businesses and our revenues and profits.
We face risks in our sales to certain market segments including, but not limited to, sales subject to HIPAA Regulations.
Our customers can use our services to store contact and other personal or identifying information, and to process, transmit, receive, store, and retrieve a variety of communications and messages, including information about their own customers and other contacts. In addition, customers may use our services to store protected health information, or PHI, that is protected under the Health Insurance Portability and Accountability Act, or HIPAA. We have sold and will continue to attempt to sell to certain customer segments which may have requirements for additional privacy or security. In addition, sales may be made to customers that are subject to additional security requirements. Selling into segments with additional requirements increases potential liability that in some instances may be unlimited. While we believe we meet or exceed all requirements for sales to such segments, there is no assurance that our systems fully comply with all requirements. Noncompliance with laws and regulations relating to privacy and HIPAA may lead to significant fines, penalties, or civil liability.
Our ability to offer services outside the United States is subject to different regulations which may be unknown and uncertain.
Regulatory treatment of VoIP providers outside the United States varies from country to country, and local jurisdictions. Many times, the laws are vague, unclear and regulations are not enforced uniformly. We are licensed as a VoIP seller in our international markets and are considering expanding to other countries. We also cannot control if our customers take their devices out of the United States and use them abroad. Our resellers may sell to customers who maintain facilities outside the United States. The failure by us or our customers and resellers to comply with laws and regulations could reduce our revenue and profitability. As we expand to additional countries there may be additional regulations that we are required to comply with, the failure to comply or properly assess regulations may subject us to penalties, fines, and other actions that could materially affect our business.
Examinations by relevant tax authorities may result in material changes in related tax reserves for tax positions taken in previously filed tax returns or may impact the valuation of certain deferred income tax assets, such as net operating loss carry-forwards.
Based on the outcome of examinations by relevant tax authorities, or because of the expiration of statutes of limitations for specific jurisdictions, it is reasonably possible that the related tax reserves for tax positions taken regarding previously filed tax returns will materially change from those recorded in our financial statements. In addition, the outcome of examinations may impact the valuation of certain deferred income tax assets (such as net operating loss carry-forwards) in future periods. It is not possible to estimate the impact of the amount of such changes, if any, on previously recorded uncertain tax positions.
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There may be a negative effect on our business going forward because of changes to net neutrality.
The principle that Internet service providers should treat all Internet communications equally, and not charge users different rates for various tiers of service or prioritize certain traffic while blocking or slowing down others, is called net neutrality. On January 4, 2018, the FCC released an order that largely repealed prior FCC rules that prevented broadband internet access providers from degrading or otherwise disrupting a broad range of services provisioned over consumers’ and enterprises’ broadband internet access lines. Many of the largest providers of broadband services, like cable companies and traditional telephone companies, have publicly stated that they will not degrade or disrupt their customers’ use of applications and services, like ours. However, there was no guarantee that they would not do so in the future. If such providers were to degrade, impair, or block our services, it would negatively impact our ability to provide services to our customers, and we would likely lose revenue and profits. We would probably incur legal fees in an attempt to restore our customers’ access to our services. Broadband internet access providers may also attempt to charge us or our customers additional fees to access services like ours that may result in the loss of customers and revenue, or increase our costs thereby reducing our profitability, or make our services less competitive if we increase our rates to our customers. President Biden and numerous Senators have criticized the status of net neutrality, at this time we are not aware if there will be legislation that might reimpose the prior regulations.
Following the adoption of the January 4, 2018 order, a number of states passed laws establishing rules similar to those that existed prior to the effective date of the January 4, 2018 order. However, we cannot rely on those state laws because of the uncertainty as to whether states have the authority to establish rules that could be interpreted to conflict with the January 4, 2018 order. The U.S. Department of Justice has taken the position that local authorities do not have the authority to contradict the FCC’s January 4, 2018 order. We cannot predict the ultimate outcome of these disputes.
States are adding regulation for VoIP providers which could increase our costs and change certain aspects of our service.
Certain states take the position that offerings by VoIP providers may include intrastate communications and should therefore be subject to state regulation including state taxes or surcharges. We have registered as an interconnected VoIP provider in those states where registration is required; however, our rates are not regulated in the same manner as traditional telephone service providers. We believe that the FCC has pre-empted states from regulating VoIP providers in the same manner as providers of traditional telecommunications services. We cannot predict how this issue will be resolved or its impact on our business at this time.
Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added, or similar taxes, and any such assessments could adversely affect our business, financial condition, and results of operations.
Jurisdictions in which we do not collect sales, use, value added, or similar taxes on VoIP services or other products may assert that such taxes are applicable, which could result in tax assessments, penalties, and interest, and we may be required to collect such taxes in the future. Such tax assessments, penalties, interest, or future requirements could adversely affect our financial condition and results of operations. Further, in June 2018, the Supreme Court held in South Dakota v. Wayfair, Inc. that states could impose sales tax collection obligations on out-of-state sellers even if those sellers lack any physical presence within the states imposing the sales taxes. Under Wayfair, a person requires only a “substantial nexus” with the taxing state before the state may subject the person to sales tax collection obligations therein. An increasing number of states (both before and after the publication of Wayfair) have considered or adopted laws that attempt to impose sales tax collection obligations on out-of-state sellers. The Supreme Court’s Wayfair decision has removed a significant impediment to the enactment and enforcement of these laws, and it is possible that states may seek to tax out-of-state sellers on sales that occurred in prior tax years, which could create additional administrative burdens for us, put us at a competitive disadvantage if such states do not impose similar obligations on our competitors, and decrease our future sales, which would adversely impact our business, financial condition, and results of operations.
Risks Related to Our Capital Structure
Holders of our Class B common stock have significantly less voting power than holders of our Class A common stock.
Holders of our Class B common stock are entitled to one-tenth of a vote per share on all matters on which our stockholders are entitled to vote, while holders of our Class A common stock are entitled to three votes per share. As a result, the ability of holders of our Class B common stock to influence our management is limited.
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Eight trusts for the benefit of sons and daughters of Howard S. Jonas, our Chairman and Chairman of the Board, hold shares that, in the aggregate, represent more than a majority of the combined voting power of our outstanding capital stock, which may limit the ability of other stockholders to affect our management.
EightHoward S. Jonas serves as our Chairman, which is an executive officer position, and our Chairman of the Board, which is a Board of Directors position. As of October 11, 2023, eight trusts for the benefit of children of Howard S. Jonas (the “Trusts”), our Chairman of the Board, collectively have voting power over 1,574,326 shares of our Class A common stock, (which is all the issued and outstanding shares of the Class A common stock), which are convertible into shares of our Class B common stock on a 1-for-1 basis, and 2,382,371 shares of our Class B common stock, representing approximately 69.5%70% of the combined voting power of our outstanding capital stock, as of October 12, 2021.11, 2023. Each of the Trusts has a different, independent trustee. In addition, as of October 12, 2021,11, 2023, The HSJ 2020 IDT AnnuityRemainder 2019 Trust holds 2,219,8211,811,711 shares of our Class B common stock and The HSJ 2020 IDW-Zedge2022 Annuity Trust holds 119,31178,016 shares of our Class B common stock. Both of these trusts have an independent trustee.
Howard S. Jonas serves as our Chairman of the Board, which is not an officer position. However, he is our founder and served as an executive officer, including our Chief Executive Officer, for a very significant time period, and the members of the Board and management often look to him for guidance on major financial, operational and strategic matters.
Howard S. Jonas does not have the right to direct or control the voting of the shares of our common stock that is held by the Trusts, and the independent trustees hold sole voting and dispositive power over the common stock held by the Trusts. However, he is the trustor of the trusts and is the father of each of the beneficiaries of the Trusts and his views may be taken into account by the trustees and others related to the Trusts. In addition, he is our founder and has served as an executive officer, including our Chief Executive Officer, for a very significant time period. The members of the Board and management often look to him for guidance on major financial, operational, and strategic matters.
We are not aware of any voting agreement between or among any of the Trusts and/or Howard S. Jonas, but if such a voting agreement or other similar arrangement exists or were to be consummated, if all or several of the Trusts were to act in concert, or if we issued additional Class A common stock, certain or all of the Trusts and/or Howard S. Jonas along with holders of the Class A common stock would be able to control matters requiring approval by our stockholders, including the election of all of the directors, amendment of organizational documents, and the approval of significant corporate transactions, including any merger, consolidation or sale of all or substantially all of our assets. As a result, the ability of any of our other stockholders to influence our management may be limited. In addition, our dual class structure has an anti-takeover effect, and accordingly, the holders of the shares of Class A common stock have the ability tocan prevent any change in control transactions that may otherwise be in the best interest of stockholders.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our headquarters is located in a building in Newark, New Jersey that is owned by Rafael Holdings.Jersey. We lease approximately 80,000 square feet of office space plus a portion of the 800-car public parking garage located across the street from the building. We also lease approximately 3,600 square feet of office space in Jerusalem, Israel that is also owned by Rafael Holdings. The Newark lease expires in April 2025 and the Israel lease expires in July 2025.
We lease space in New York, New York for corporate purposes as well as a number of other locations in metropolitan areas. These leased spaces are utilized primarily to house telecommunications equipment and retail operations.
We maintain our European headquarters in London, England. We also maintain other international office locations and telecommunications facilities in regions of Europe, Latin America, the Middle East, Asia, and Africa where we conduct operations.
Item 3. Legal Proceedings.
On January 22, 2019, Jose Rosales filed a putative class action against IDT America, IDT Domestic Telecom and IDT InternationalLegal proceedings disclosure is presented in California state court alleging certain violationsNote 23 to our Consolidated Financial Statements in Item 8 to Part II of employment law. Plaintiff alleges that these companies failed to compensate members of the putative class in accordance with California law. In August 2019, we filed a cross complaint against Rosales alleging trade secret and other violations. The parties are now seeking court approval of a settlement agreement.
On April 24, 2018, Sprint Communications Company L.P. filed a patent infringement claim against us and certain of our affiliates in the U.S. District Court for the District of Delaware alleging infringement of U.S. Patent Nos. 6,298,064; 6,330,224; 6,343,084; 6,452,932; 6,463,052; 6,473,429; 6,563,918; 6,633,561; 6,697,340; 6,999,463; 7,286,561; 7,324,534; 7,327,728; 7,505,454; and 7,693,131. Plaintiff was seeking damages and injunctive relief. On June 28, 2018, Sprint dismissed the complaint without prejudice. We are evaluating the underlying claim, and at this stage, are unable to estimate our potential liability, if any. We intend to vigorously defend any claim of infringement of the listed patents.
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 us, The Patrick Henry Trust (a trust formed by Howard S. Jonas that held record and beneficial ownership of certain shares of Straight Path he formerly held), Howard S. Jonas, and each of Straight Path’s directors. The complaint alleges that we 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 us related to potential indemnification claims concerning Straight Path’s obligations under the Consent Decree it entered into with the FCC, as well as the sale of Straight Path’s subsidiary Straight Path IP Group, Inc. to us in connection with that settlement. That action was consolidated with a similar action that was initiated by The Arbitrage Fund. The Plaintiffs are seeking, among other things, (i) a declaration that the action may be maintained as a class action or in the alternative, that demand on the Straight Path Board is excused; (ii) that the term sheet is invalid; (iii) awarding damages for the unfair price stockholders received in the merger between Straight Path and Verizon Communications Inc. for their shares of Straight Path’s Class B common stock; and (iv) ordering Howard S. Jonas, Davidi Jonas, and us to disgorge any profits for the benefit of the class Plaintiffs. On August 28, 2017, the Plaintiffs filed an amended complaint. On September 24, 2017, the Company filed a motion to dismiss the amended complaint, which was ultimately denied, and which denial was affirmed by the Delaware Supreme Court. The parties are engaged in discovery. The trial is currently scheduled for May 2022. We intend to vigorously defend this matter. At this stage, we are unable to estimate our potential liability, if any.
In addition to the foregoing, we are 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, we believe that none of the other legal proceedings to which we are a party will have a material adverse effect on our results of operations, cash flows, or financial condition.Annual Report.
Item 4. Mine Safety Disclosures.
Not applicable.
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Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our Class B common stock trades on the New York Stock Exchange under the symbol “IDT.”
On October 12, 2021,11, 2023, there were 284271 holders of record of our Class B common stock and eight holders of record of our Class A common stock. All shares of Class A common stock are beneficially owned by eight trusts for the benefit of children of Howard S. Jonas, our Chairman and the Chairman of the Board. The number of holders of record of our Class B common stock does not include the number of persons whose shares are in nominee or in “street name” accounts through brokers. On October 12, 2021,11, 2023, the last sales price reported on the New York Stock Exchange for the Class B common stock was $51.81$27.37 per share.
In fiscal 2018, our Board of Directors discontinued our quarterly dividend, electing instead to repurchase shares of our Class B common stock when warranted by market conditions, available resources, and our business outlook and results, as well as to invest in our growth business initiatives. Accordingly, no dividends were paid in fiscal 20212023 or fiscal 2020.2022.
The information required by Item 201(d) of Regulation S-K will be contained in our Proxy Statement for our Annual Stockholders Meeting, which we will file with the Securities and Exchange Commission within 120 days after July 31, 2021,2023, and which is incorporated by reference herein.
Performance Graph of Stock
We are a smaller reporting company as defined by Rule 12b-2 of the Securities and Exchange Act of 1934 and are not required to provide the information under this item.
Issuer Purchases of Equity Securities
The following table provides information with respect to purchases by us of our shares during the fourth quarter of fiscal 2021.2023.
Number of Shares Purchased | Price per Share |
|
| ||||||||||
| 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 | |||||||||||||
| May 1 – 31, 2023(2) | 14,680 | $ | 32.37 | — | 4,933,623 | |||||||||||
| June 1 – 30, 2023 | — | — | — | 4,933,623 | ||||||||||||
| July 1 – 31, 2023 | 231,416 | $ | 24.07 | 231,416 | 4,702,207 | |||||||||||
| Total | 246,096 | $ | 24.56 | 231,416 | ||||||||||||
| (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 employees’ tax withholding obligations in connection with the lapsing of restrictions on 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. |
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Item 6. Selected Financial Data.
Smaller reporting companies are not required to provide the information required by this item.[Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Annual Report 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 this Annual Report. The forward-looking statements are made as of the date of this Annual 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 Securities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our reports on Forms 10-Q and 8-K.
We followed the disclosure requirements of Regulation S-K applicable to smaller reporting companies in this Annual Report on Form 10-K. In accordance with Item 10(f)(2) of Regulation S-K, we qualify as a “smaller reporting company” because our public float was below $200 million as of January 31, 2020, the last business day of our second quarter in fiscal 2020. Our public float as of January 29, 2021, the last business day of our second quarter in fiscal 2021, was $292.2 million. Therefore, in accordance with Item 10(f)(1) of Regulation S-K, we will transition from the scaled disclosure available to smaller reporting companies to the disclosure requirements applicable to all other companies beginning with our Quarterly Report on Form 10-Q for our first quarter in fiscal 2022.
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Annual Report.
CRITICAL ACCOUNTING POLICIESESTIMATES
Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policiesestimates are thoseestimates made in accordance with U.S. GAAP that require applicationinvolve a significant level of management’s most subjectiveestimation uncertainty and have had, or complex judgments, often asare reasonably likely to have, a resultmaterial impact on our financial condition or results of matters that are inherently uncertain and may change in subsequent periods.operations. Our critical accounting policiesestimates include those related to thegoodwill impairment testing, valuation of long-lived assets, allowance for doubtful accounts goodwill, valuation of long-lived assets,receivable, and income taxes, sales taxes, and regulatory agency fees. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. See Note 1 to the Consolidated Financial Statements in Item 8 to Part II of this Annual Report for a complete discussion of our significant accounting policies.
Goodwill Impairment Testing
AllowanceUnder U.S. GAAP, goodwill is not amortized but is reviewed annually for Doubtful Accountsimpairment at a level of reporting referred to as a reporting unit. A reporting unit is an operating segment, or one level below the operating segment, depending on whether certain criteria are met.
Our allowanceannual assessment date is May 1. An interim impairment test would be required whenever events or circumstances make it more likely than not that an impairment may have occurred. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount. We would recognize an impairment charge for doubtful accounts was $4.4 million at July 31, 2021 and $6.1 million at July 31, 2020. The allowance for doubtful accounts as a percentagethe amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of gross trade accounts receivable decreased to 8.7% at July 31, 2021goodwill. Additionally, we consider income tax effects from 12.1% at July 31, 2020 becauseany tax-deductible goodwill on the allowance for doubtful accounts decreased 27.1% and gross trade accounts receivable increased 1.7% at July 31, 2021 compared to July 31, 2020.carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.
We estimate the balance of our allowance for doubtful accounts by analyzing accounts receivable balances by age and applying historical write-off and collection trend rates. Our estimates include separately providing for customer receivables based on specific circumstances and credit conditions, and when it is deemed probable that the balance is uncollectible. Account balances are written off against the allowance when it is determined that the receivable will not be recovered. Our estimates of recoverability of customer accounts may change due to new developments, changes in assumptions or changes in our strategy, which may impact our allowance for doubtful accounts balance. We continually assess the likelihood of potential amounts or ranges of recoverability and adjust our allowance accordingly, however, actual collections and write-offs of trade accounts receivables may materially differ from our estimates.
Goodwill
Our goodwill is attributable to reporting units in our Traditional Communications segment and to net2phone-UCaaS, which is both a segment and a reporting unit. Goodwill was $14.9 million and $12.9 million at July 31, 2021 and 2020, respectively.
Goodwill is not amortized. Instead, goodwill is reviewed annually (or more frequently under various conditions) for impairment. We have the option to perform a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test. However, we may elect to perform the quantitative goodwill impairment test even if no indications of a potential impairment exist.
When performingThe carrying amount of our goodwill by reporting unit was as follows:
| (in millions) July 31 | 2023 | 2022 | ||||||
| Retail Communications | $ | 11.2 | $ | 11.1 | ||||
| net2phone | 9.9 | 9.7 | ||||||
| Fintech | 3.2 | 3.2 | ||||||
| IDT Digital Payments | 2.2 | 2.4 | ||||||
| TOTAL | $ | 26.5 | $ | 26.4 | ||||
For our annual goodwill impairment tests as of May 1, 2023 and 2022, we performed qualitative assessments for all of our reporting units that indicated that it was more likely than not that the fair values of our reporting units exceeded their respective carrying values and, therefore, did not result in an impairment. In addition, we do not believe we are currently at risk of goodwill impairment. Our qualitative assessments considered several factors including (i) the business enterprise value of the reporting unit from the last quantitative test at May 1, 2020 and the excess of the fair value over carrying value, (ii) macroeconomic conditions including changes in interest rates and discount rates, (iii) industry and market considerations including industry revenue, EBITDA margins, and multiples based on business enterprise value to revenues and to EBITDA, and (iv) the recent financial performance and budget of the reporting unit.
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For our quantitative annual, or interim, goodwill impairment testassessment, we are comparingcalculate the fair value of the reporting unit with its carrying amount. We would recognize an impairment charge forusing a discounted cash flow method as a form of the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocatedincome approach, and a market approach that incorporates comparative multiples to the reporting unit. Additionally, we consider income tax effects from any tax-deductible goodwillcorroborate discounted cash flow results. The discounted cash flow method is based on the carrying amountpresent value of projected cash flows and a terminal value. The terminal value represents the expected normalized future cash flows of the reporting unit when measuringbeyond the goodwill impairment loss, if applicable. Theprojection period. We use a discount rate based on the weighted-average cost of capital of comparable companies by Standard Industrial Classification, or SIC, code that represents our estimate of the expected return a marketplace participant would have required.
Calculating the fair value of thea reporting unit is estimated usingrequires significant estimates and assumptions by management. The key assumptions and judgments underlying our quantitative assessment include the discount rates and terminal growth rates used in our discounted cash flow methodologies, as well as considering third party market value indicators. Our use of a discounted cash flow methodology includesanalysis, the revenue and EBITDA projections for our reporting units, estimates of future revenue based upon budgets and projections. We also develop estimates for future levels of gross and operating profits and projected capital expenditures. Our methodology also includesexpenditures, and the useselection of estimated discount rates based upon industry and competitor analysis as well as other factors.
In fiscal 2020, we performed a quantitative annual impairment test which resulted in no goodwill impairment sincecomparable companies for the estimated fair values of our reporting units substantially exceeded their carrying value. In fiscal 2021, we performed a qualitative assessment and determined that it was not necessary to perform the quantitative goodwill impairment test. In addition, we do not believe our reporting units are currently at risk of goodwill impairment. Calculating the fair value of the reporting units requires significant estimates and assumptions by management.market approach. Should the estimates and assumptions regarding the fair value of the reporting units prove to be incorrect, we may be required to record impairments to our goodwill in future periods and such impairments could be material.periods.
Valuation of Long-Lived Assets
We test the recoverability of our long-lived assets whenever events or changes in circumstances indicate that the carrying value of any such asset may not be recoverable. Such events or changes in circumstances include:
| ■ | significant actual underperformance relative to expected performance or projected future operating results; |
| ■ | significant changes in the manner or use of the asset or the strategy of our overall business; |
| ■ | significant adverse changes in the business climate in which we operate; and |
| ■ | loss of a significant contract. |
There were no such events or changes in circumstances in fiscal 20212023 or fiscal 2020.2022. If we determine that events or changes in circumstances indicate the carrying value of certain long-lived assets may not be recoverable, we test for impairment based on the projected undiscounted cash flows to be derived from such asset. If the projected undiscounted future cash flows are less than the carrying value of the asset, we will record an impairment loss based on the difference between the estimated fair value and the carrying value of the asset. We generally measure fair value by considering sale prices for similar assets or by discounting estimated future cash flows from the asset using an appropriate discount rate. Cash flow projections for specific assets and fair value estimates of assets require significant estimates and assumptions by management.management that have a significant level of estimation uncertainty. Should our estimates and assumptions prove to be incorrect, we may be required to record impairments in future periods and such impairments could be material.
Allowance for Doubtful Accounts Receivable
Our allowance for doubtful accounts was $5.6 million at July 31, 2023 and $5.3 million at July 31, 2022. The allowance for doubtful accounts as a percentage of gross trade accounts receivable increased to 15.0% at July 31, 2023 from 11.9% at July 31, 2022 because, at July 31, 2023 compared to July 31, 2022, gross trade accounts receivable decreased 15.9% and the allowance for doubtful accounts increased 5.9%. The most significant decrease in the gross trade accounts receivable balance at July 31, 2023 compared to July 31, 2022 was in IDT Digital Payments.
We estimated the balance of our allowance for doubtful accounts by analyzing accounts receivable balances by age and applying historical write-off and collection trend rates. Our estimates included separately providing for customer receivables based on specific circumstances and credit conditions, and when it was deemed probable that the balance was uncollectible. Account balances are written off against the allowance when it is determined that the receivable will not be recovered.
On August 1, 2023, we adopted Accounting Standards Update, or 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. Effective with the adoption of ASU 2016-13, we will record an expense based on a forward-looking current expected credit loss model to maintain an allowance for credit losses. When determining the allowance for trade accounts receivable, we will consider the probability of recoverability of accounts receivable based on past experience, taking into account current collection trends and general economic factors, including bankruptcy rates. We will also consider 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.
Our allowance for credit losses estimates is subject to change due to new developments, changes in assumptions or changes in our strategy. We continually assess the likelihood of potential amounts or ranges of recoverability and adjust our allowance accordingly, however, actual collections and write-offs of trade accounts receivables may materially differ from our estimates.
Income Taxes, Sales Taxes, and Regulatory Agency Fees
Our current and deferred income taxes and associated valuation allowance, accruals for sales taxes, and telecom regulatory agency fee accruals, are impacted by events and transactions arising in the normal course of business as well as in connection with special and non-routine items. Assessment of the appropriate amount of income taxes, sales taxes, and regulatory agency fees is dependent on several factors, including estimates of the timing and realization of deferred income tax assets, judgments about the potential results of audits changes in tax laws orand applicability of regulatory agency rules and regulations, as well as unanticipated future actions impacting related accruals ofjudgments and assumptions about changes in income tax, sales tax, and regulatory agency fees.laws, rules, or regulations.
The valuation allowance on our deferred income tax assets was $11.5$10.6 million and $58.7$11.6 million at July 31, 20212023 and 2020,2022, respectively. In fiscal 2023, we decreased the valuation allowance by $1.0 million, which included a decrease of $2.8 million due to the utilization or disposal of previously valued deferred income tax assets and a release of $0.7 million for profitability in the United Kingdom, net of an establishment of $2.5 million for deferred income tax assets that were not more likely than not going to be utilized prior to expiration. In fiscal 2021, we released $46.5 million of our valuation allowance on the portion of the deferred income tax assets that we are more likely than not going to utilize. This release was mostly related to domestic deferred income tax assets. We used the framework of Accounting Standards Codification, or ASC, Income Taxes (Topic 740) to determine whether the valuation allowance should be maintained or reversed. We considered the scheduled expiration of our net operating losses included in our deferred tax assets, projected future taxable income, and tax planning strategies in our assessment of the valuation allowance. The primary factors that resulted in the valuation allowance release were the three consecutive years of profitability in the United States and expected future profitability in both the United States and the United Kingdom that will utilize a significant portion of the net operating losses. Our tax planning strategies were not a significant factor in the analysis. In fiscal 2020, due to taxable income in the United States, we utilized deferred tax assets and released the corresponding valuation allowance to offset income tax expense of $3.5 million. In addition, in fiscal 2020, we released an additional $8.4 million of the valuation allowance on the portion of the deferred tax assets that we are more likely than not going to utilize because we forecasted future profitability in the United States.
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. We have evaluated our state tax filings with respect to the Wayfair decision and are in the process of reviewing our remittance practices. 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.
Our 2017 FCC Form 499-A, which reports our calendar year 2016 revenue, is currently under auditwas audited by the USAC. The Internal Audit Division of USAC issued preliminary audit findings and, we have, in accordance with USAC’s audit procedures, we appealed certain of the findings. We are awaitingUSAC issued a final decision, by USAC on the preliminary audit findings. Depending on the findings contained inand the final decision we may further appeal tooverturned one of the FCC. Althoughinitial findings but left the remaining initial findings in place. The reversal will result in the elimination of a $1.8 million charge by the Universal Service Fund. The final decision remains pending, we have been invoicedupheld the imposition of a $2.9 million and $1.8 million on behalf ofcharge to the Federal Telecommunications Relay Services FundService, or TRS, Fund. We have appealed the USAC’s final decision to the FCC and on behalf of the Universal Service Fund, respectively. Wewe do not intend to remit payment for thesethe TRS Fund fees unless and until a negative decision on our appeal has been issued. In response to the aforementioned preliminary audit findings, we made certain changes to our filing policies and procedures for years that remain potentially under audit. At July 31, 20212023 and 2020,2022, our accrued expenses included $38.3$26.8 million and $40.8$33.2 million, respectively, for FCC-related regulatory fees for the year covered by the audit, as well as prior and subsequent years.
RECENTLY ISSUED ACCOUNTING STANDARD NOT YET ADOPTED
In June 2016,2022, the Financial Accounting Standards Board issued Accounting Standards UpdateASU No. 2016-13,2022-03, Financial Instruments—Credit LossesFair Value Measurement (Topic 326)820), Fair Value Measurement of Credit Losses on Financial Instruments,Equity Securities Subject to Contractual Sale Restrictions, that changesclarifies that a contractual restriction on the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking current expected credit loss model that generally will result in the earlier recognitionsale of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized costan equity security is not considered part of the securities. In addition, an entity will haveunit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU also requires specific disclosures related to disclose significantly more information about allowances, credit quality indicators, and past due securities. The new provisions will be applied as a cumulative-effect adjustmentequity securities that are subject to retained earnings.contractual sales restrictions. We will adopt the new standardamendments in this ASU prospectively on August 1, 2023.2024. We are evaluating the impact that the new standardthis ASU will have on our consolidated financial statements.
RESULTS OF OPERATIONS
As of August 1, 2020, we revised our reportable business segments to reflect the growth of our financial technology and cloud communications businesses and their increased contributions to our consolidated results. Our three reportable business segments, Fintech, net2phone-UCaaS, and Traditional Communications, reflect management’s approach to analyzing results, its resource allocation strategy, and its assessment of business performance. Comparative segment information has been reclassified and restated in all periods to conform to the current period presentation. 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.
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Coronavirus Disease (COVID-19)
COVID-19
We continueIn May 2023, the World Health Organization declared an end to monitor and respond to the impacts of the COVID-19 pandemic on all aspects of our business, including our customers, employees, suppliers, vendors, and business partners.
Operationally, our employees transitioned to work-from-home during the third quarter of fiscal 2020 and, to a large degree, continue to work-from-home. Beginning in the fourth quarter of fiscal 2021, certain of our employees returned to our offices on a part-time basis. Our salespeople, customer service employees, technicians, and delivery employees continue to serve our independent retailers, channel partners, and customers with minimal interruption.
COVID-19 had mixed financial impacts on our businesses beginning in the third quarter of fiscal 2020 and continuing through the fourth quarter of fiscal 2021. It drove increases in demand for our consumer offerings, principally BOSS Revolution Money Transfer, BOSS Revolution Calling and Mobile Top-Up, through our digital channels beginning in the latter half of March 2020. Subsequently, digital transaction levels have continued to increase relative to retailer originated transactions. Conversely, sales of consumer offerings originating through retailers and channel partners slowed modestly in late March and April 2020 before stabilizing in the fourth quarter of fiscal 2020. NRS was immaterially impacted by the closure of some of its retailers in the third quarter of fiscal 2020, but most re-opened quickly and many attracted increased foot traffic following the onset of COVID-19 as local retailers are typically more accessible to pedestrian traffic than big box retailers. The resilience of local retailers has enabled NRS to continue to expand sales of terminals, payment processing, and advertising services. Carrier Services’ revenue, which had been declining as communications globally transition away from traditional international long-distance voice, declined more rapidly following the onset of COVID-19 as business communications shifted from calling to video conferencing and other collaboration platforms.
At the onset of COVID-19, the transition from offices to a more flexible workforce increased the demand for net2phone-UCaaS’ offerings. Customers transitioned from their on-premises phone system to net2phone-UCaaS’ cloud solution, ported their phone numbers, and quickly set-up their employees to work remotely. In April 2020, the release of Huddle, net2phone-UCaaS’ integrated video conferencing solution, significantly improved net2phone-UCaaS’ functionality for remote work, which also increased the demand for its services. COVID-19 had mixed financial impacts on net2phone-UCaaS’ business beginning in the third quarter of fiscal 2020. Its customer base growth slowed somewhat in the second half of fiscal 2020 in certain Latin American markets. However, Latin American sales rebounded in the first quarter of fiscal 2021 and sales have remained strong in its United States and Canadian markets. In the second half of fiscal 2021, COVID-19 cases increased in Latin America, in particular Brazil, and in Spain. This caused businesses to downsize or shutdown, which reduced its customer base and revenues. In the fourth quarter of fiscal 2021, the demand for flexible communications solutions for a hybrid workforce has resulted in an increase in new net2phone-UCaaS customers.
public health emergency. As of the date of this Annual Report, includingwe continue to monitor the impact of COVID-19, we expect that our cash from operations and the balance of cash, cash equivalents, debt securities, and current equity investments that we held on July 31, 2021 will be sufficient to meet our currently anticipated working capital and capital expenditure requirements during fiscal 2022. However, the situation remains fluid and wesituation. We cannot predict with certainty the potential impact of COVID-19 if it re-invigorates on our business, results of operations, financial condition, andor cash flows.
Concentration of Customers
Our most significant customers typically include telecom operators to whom we provide wholesale services and distributors of our retail calling products. While they may vary from quarter to quarter, our five largest customers collectively accounted for 14.5%10.8%, 12.5%, and 12.7%14.5% of our consolidated revenues in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively. Our customers with the five largest receivables balance collectively accounted for 9.7%16.7% and 13.8%27.1% of theour consolidated gross trade accounts receivable at July 31, 20212023 and 2020,2022, respectively. This concentration of customers increases our risk associated with nonpayment by those customers. In an effort to reduce our risk, we perform ongoing credit evaluations of our significant customers, and in some cases, do not offer credit terms to customers, choosing instead to require prepayment. Historically, when we have issued credit, we have not required collateral to support trade accounts receivablesreceivable from our customers. However, when necessary, we have imposed stricter credit restrictions on our customers. In some cases, this has resulted in our sharply curtailing, or ceasing completely, sales to certain customers. We attempt to mitigate our credit risk related to specific Carrier ServicesIDT Global customers by also buying services from the customer, in order to create an opportunity to offset our payables and receivables with the customer. In this way, we can continue to sell services to these customers while reducing our receivable exposure risk. When it is practical to do so, we will increase our purchases from Carrier ServicesIDT Global customers with receivable balances that exceed our applicable payables in order to maximize the offset and reduce our credit risk.
Explanation of Performance Metrics
Our results of operations discussion include the following performance metrics: active POS terminals, payment processing accounts, direct cost of revenues as a percentage of revenues, seats, subscription revenue, and minutes of use.
| ■ | for NRS, active POS terminals, payment processing accounts, and recurring revenue, |
| ■ | for net2phone, seats and subscription revenue, and |
| ■ | for Traditional Communications, minutes of use. |
NRS uses two key metrics, among others, to measure the size of its customer base: active POS terminals and payment processing accounts. Active POS terminals are the number of POS terminals that have completed at least one transaction in the calendar month. It excludes POS terminals that are being installed. Payment processing accounts are NRS PAY accounts that can generate revenue. It excludes accounts that have been approved but not activated. NRS uses these two metricsNRS’ recurring revenue is NRS’ revenue in accordance with U.S. GAAP excluding its analysis of revenue trends and comparisons between periods.from POS terminal sales.
Direct cost of revenues as a percentage of revenues is a financial metric that measures changes in our direct cost of revenues relative to changes in revenues during the same period. Direct cost of revenues is the numerator and revenues are the denominator in this ratio. Direct cost of revenues as a percentage of revenues is a useful metric for monitoring and evaluating trends in the net contribution of our revenues.
net2phone-UCaaS’net2phone’s cloud communications offering isofferings are priced on a per-seat basis, with each customer employee identity constituting a seat, and itscustomers 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 monthly base fee per seat. legacy SIP trunking offering in Brazil.
The number of seats served and subscription revenue 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 net2phone-UCaaS’NRS’ or net2phone’s revenues and direct cost of revenues.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 Carrier Services’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.
Year Ended July 31, 20212023 compared to Year Ended July 31, 20202022 and Year Ended July 31, 2022 compared to Year Ended July 31, 2021
As of July 31, 2023, we owned 90.0% of the outstanding shares of our subsidiary, net2phone 2.0, Inc., or net2phone 2.0, which owns and operates the net2phone segment, and 80.0% of the outstanding shares of 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 85.8% of net2phone 2.0 and 77.7% of NRS.
As of August 1, 2022, we revised our reportable business segments primarily to reflect the growth of our financial technology businesses and their increased contributions to our consolidated results. Our four reportable business segments, NRS, Fintech, net2phone, and Traditional Communications, reflect management’s current approach to analyzing results, its resource allocation strategy, and its assessment of business performance. NRS was previously included in our Fintech segment. In addition, certain lines of business were reclassified to the Fintech segment from the Traditional Communications segment. Comparative segment information has been reclassified and restated in all periods to conform to the current period presentation.
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The following table sets forth certain items in our statements of income as a percentage of our total revenues:
| Year ended July 31 | 2021 | 2020 | ||||||
| REVENUES: | ||||||||
| Fintech | 5.2 | % | 4.4 | % | ||||
| net2phone-UCaaS | 3.0 | 2.4 | ||||||
| Traditional Communications | 91.8 | 93.2 | ||||||
| TOTAL REVENUES | 100.0 | 100.0 | ||||||
| COSTS AND EXPENSES: | ||||||||
| Direct cost of revenues (exclusive of depreciation and amortization) | 79.8 | 80.5 | ||||||
| Selling, general and administrative | 15.1 | 16.0 | ||||||
| Depreciation and amortization | 1.2 | 1.5 | ||||||
| Severance | — | 0.3 | ||||||
| TOTAL COSTS AND EXPENSES | 96.1 | 98.3 | ||||||
| Other operating gain (expense), net | 0.1 | (0.4 | ) | |||||
| INCOME FROM OPERATIONS | 4.0 | 1.3 | ||||||
| Interest income, net | — | 0.1 | ||||||
| Other income (expense), net | 0.5 | (0.1 | ) | |||||
| INCOME BEFORE INCOME TAXES | 4.5 | % | 1.3 | % | ||||
| Year ended July 31 | 2023 | 2022 | 2021 | |||||||||
| REVENUES: | ||||||||||||
| National Retail Solutions | 6.2 | % | 3.8 | % | 1.7 | % | ||||||
| Fintech | 7.0 | 4.7 | 4.0 | |||||||||
| net2phone | 5.8 | 4.3 | 3.1 | |||||||||
| Traditional Communications | 81.0 | 87.2 | 91.2 | |||||||||
| TOTAL REVENUES | 100.0 | 100.0 | 100.0 | |||||||||
| COSTS AND EXPENSES: | ||||||||||||
| Direct cost of revenues (exclusive of depreciation and amortization) | 70.7 | 75.8 | 79.8 | |||||||||
| Selling, general and administrative | 22.4 | 18.4 | 15.1 | |||||||||
| Depreciation and amortization | 1.6 | 1.3 | 1.2 | |||||||||
| Severance | — | — | — | |||||||||
| TOTAL COSTS AND EXPENSES | 94.7 | 95.5 | 96.1 | |||||||||
| Other operating (expense) gain, net | (0.4 | ) | (0.1 | ) | 0.1 | |||||||
| INCOME FROM OPERATIONS | 4.9 | 4.4 | 4.0 | |||||||||
| Interest income, net | 0.3 | — | — | |||||||||
| Other (expense) income, net | (0.3 | ) | (1.8 | ) | 0.5 | |||||||
| INCOME BEFORE INCOME TAXES | 4.9 | % | 2.6 | % | 4.5 | % | ||||||
FintechNational Retail Solutions Segment
Fintech,NRS, which represented 5.2%6.2%, 3.8%, and 4.4%1.7% of our total revenues in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively, comprises BOSS Revolution Money Transfer, a provider of international money remittance and related value/payment transfer services, and NRS,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, and ancillary services. BOSS Revolution Money Transfer and NRS were previously included in our Telecom & Payment Services segment.data.
| (in millions) | Change | 2023 change from 2022 | 2022 change from 2021 | |||||||||||||||||||||||||||||||||||||||||
| Year ended July 31 | 2021 | 2020 | $ | % | 2023 | 2022 | 2021 | $ | % | $ | % | |||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||||||||||||||
| BOSS Revolution Money Transfer | $ | 49.6 | $ | 47.9 | $ | 1.7 | 3.4 | % | ||||||||||||||||||||||||||||||||||||
| National Retail Solutions | 24.7 | 12.0 | 12.7 | 106.6 | ||||||||||||||||||||||||||||||||||||||||
| Recurring | $ | 71.4 | $ | 45.3 | $ | 19.7 | $ | 26.1 | 57.8 | % | $ | 25.6 | 129.2 | % | ||||||||||||||||||||||||||||||
| Other | 5.7 | 6.0 | 5.0 | (0.3 | ) | (6.0 | ) | 1.0 | 20.8 | |||||||||||||||||||||||||||||||||||
| Total revenues | 74.3 | 59.9 | 14.4 | 24.1 | 77.1 | 51.3 | 24.7 | 25.8 | 50.3 | 26.6 | 107.3 | |||||||||||||||||||||||||||||||||
| Direct cost of revenues | 26.2 | 19.2 | 7.0 | 36.1 | (8.9 | ) | (7.1 | ) | (4.8 | ) | 1.8 | 25.5 | 2.3 | 47.1 | ||||||||||||||||||||||||||||||
| Selling, general and administrative | 47.9 | 35.8 | 12.1 | 33.9 | (51.4 | ) | (32.1 | ) | (19.6 | ) | 19.3 | 60.3 | 12.5 | 63.3 | ||||||||||||||||||||||||||||||
| Depreciation and amortization | 1.7 | 1.5 | 0.2 | 14.9 | (2.4 | ) | (0.9 | ) | (0.6 | ) | 1.5 | 160.9 | 0.3 | 74.3 | ||||||||||||||||||||||||||||||
| (Loss) income from operations | $ | (1.5 | ) | $ | 3.4 | $ | (4.9 | ) | (143.2 | )% | ||||||||||||||||||||||||||||||||||
| Income (loss) from operations | $ | 14.4 | $ | 11.2 | $ | (0.3 | ) | $ | 3.2 | 28.5 | % | $ | 11.5 | nm | ||||||||||||||||||||||||||||||
nm—not meaningful
| (in thousands) | 2023 change from 2022 | 2022 change from 2021 | ||||||||||||||||||||||||||
| July 31 | 2023 | 2022 | 2021 | # | % | # | % | |||||||||||||||||||||
| Active POS terminals | 25.7 | 19.4 | 14.0 | 6.3 | 32.6 | % | 5.4 | 37.8 | % | |||||||||||||||||||
| Payment processing accounts | 15.8 | 10.3 | 5.9 | 5.5 | 52.9 | % | 4.4 | 76.1 | % | |||||||||||||||||||
Revenues. Revenues from BOSS Revolution Money Transfer increased in each of fiscal 20212023 and fiscal 2022 compared to the prior fiscal 2020year driven primarily by increased transaction volume in its digital channel,revenue growth from NRS’ merchant services and a significant but diminished benefit from transient foreign exchange market conditions that ceased by the endsales of the second quarter of fiscal 2021.
Revenues from NRS increased in fiscal 2021 compared to fiscal 2020 driven primarily byadvertising and data, as well as the expansion of itsNRS’ POS network, and revenue growth from its payment processing services and digital out-of-home advertising. Merchant services and other revenue, which includes payment processing services, increased 295% to $7.8 million in fiscal 2021 from $2.0 million in fiscal 2020. Advertising and data revenue increased 95% to $8.7 million in fiscal 2021 from $4.5 million in fiscal 2020. Active POS terminals increased 40% to 14,000 at July 31, 2021 from 10,000 at July 31, 2020. Payment processing accounts increased 124% to 5,600 at July 31, 2021 from 2,500 at July 31, 2020.network.
Direct Cost of Revenues. Direct cost of revenues increased in each of fiscal 20212023 and fiscal 2022 compared to the prior fiscal 2020year primarily due to increases in the increase in revenues. BOSS Revolution Money Transfer’s direct costcosts of revenues increased in fiscal 2021 compared to fiscal 2020 due to increased direct cost of revenues in its digital channel.NRS’ POS terminal sales.
| Year ended July 31 | 2021 | 2020 | Change | |||||||||
| Direct cost of revenues as a percentage of revenues | 35.2 | % | 32.1 | % | 3.1 | % | ||||||
Direct cost of revenues as a percentage of revenues increased 310 basis points in fiscal 2021 compared to fiscal 2020 primarily due to an increase in direct cost of revenues as a percentage of revenues in BOSS Revolution Money Transfer’s digital channel, partially offset by a decrease in direct cost of revenues as a percentage of revenues in NRS.
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Selling, General and Administrative. Selling, general and administrative expense increased in each of fiscal 20212023 and fiscal 2022 compared to the prior fiscal 2020year primarily due to increases in sales commissions, as well as increases in employee compensation,compensation. As a percentage of NRS’ revenue, NRS’ selling, general and administrative expense was 66.7%, 62.5%, and 79.3% in fiscal 2023, fiscal 2022, and fiscal 2021, respectively.
Depreciation and Amortization. Depreciation and amortization expense increased in each of fiscal 2023 and fiscal 2022 compared to the prior fiscal year primarily due to increased depreciation of capitalized costs of consultants and employees developing internal use software.
Fintech Segment
Fintech, which represented 7.0%, 4.7%, and 4.0% of our total revenues in fiscal 2023, fiscal 2022, and fiscal 2021, respectively, is comprised of BOSS Money, a provider of international money remittance and related value/payment transfer services, as well as other, significantly smaller, financial services businesses, including Leaf, a provider of digital wallet services in emerging markets, a variable interest entity, or VIE, that operates money transfer businesses, and IDTFS, our Gibraltar-based bank.
| (in millions) | 2023 change from 2022 | 2022 change from 2021 | ||||||||||||||||||||||||||
| Year ended July 31 | 2023 | 2022 | 2021 | $ | % | $ | % | |||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||
| BOSS Money | $ | 76.9 | $ | 55.6 | $ | 49.3 | $ | 21.3 | 38.5 | % | $ | 6.3 | 12.7 | % | ||||||||||||||
| Other | 9.7 | 9.0 | 8.3 | 0.7 | 7.2 | 0.7 | 8.8 | |||||||||||||||||||||
| Total revenues | 86.6 | 64.6 | 57.6 | 22.0 | 34.1 | 7.0 | 12.1 | |||||||||||||||||||||
| Direct cost of revenues | (36.5 | ) | (26.1 | ) | (21.8 | ) | 10.4 | 40.0 | 4.3 | 19.7 | ||||||||||||||||||
| Selling, general and administrative | (51.9 | ) | (43.1 | ) | (35.9 | ) | 8.8 | 20.3 | 7.2 | 20.2 | ||||||||||||||||||
| Depreciation and amortization | (2.6 | ) | (2.2 | ) | (1.5 | ) | 0.4 | 20.2 | 0.7 | 47.3 | ||||||||||||||||||
| Severance | — | (0.1 | ) | — | (0.1 | ) | (100.0 | ) | 0.1 | nm | ||||||||||||||||||
| Other operating gain (expense) | 1.9 | — | (0.3 | ) | (1.9 | ) | nm | (0.3 | ) | (105.4 | ) | |||||||||||||||||
| Loss from operations | $ | (2.5 | ) | $ | (6.9 | ) | $ | (1.9 | ) | $ | 4.4 | 63.4 | % | $ | (5.0 | ) | (253.7 | )% | ||||||||||
nm—not meaningful
Revenues. Revenues from BOSS Money increased in each of fiscal 2023 and fiscal 2022 compared to the prior fiscal year primarily because of increased transaction volume in BOSS Money’s direct-to-consumer digital and retail channels and, in fiscal 2023, from the development and introduction of new platform functionalities enabling more flexible and granular pricing strategies. The revenue increase in fiscal 2022 compared to fiscal 2021was partially offset by the lack of revenue from transient foreign exchange market conditions that materially improved BOSS Money’s revenues in fiscal 2021 but ceased by the end of the second quarter of fiscal 2021. BOSS Money continues to benefit from ongoing expansion of its disbursement networks, particularly in Africa and the Caribbean.
Direct Cost of Revenues. Direct cost of revenues increased in each of fiscal 2023 and fiscal 2022 compared to the prior fiscal year primarily due to increased direct cost of revenues in BOSS Money’s direct-to-consumer digital and retail channels, which reflected the increases in BOSS Money’s revenue.
Selling, General and Administrative. Selling, general and administrative expense increased in fiscal 2023 compared to fiscal 2022 primarily due to increases in debit and credit card processing charges, employee compensation, sales commissions, and marketing expense.expenses. Selling, general and administrative expense increased in fiscal 2022 compared to fiscal 2021 primarily due to increases in debit and credit card processing charges, employee compensation, and sales commissions. The increaseincreases in card processing charges waswere the result of increased credit and debit card transactions through our BOSS Revolution Money app and other digital channels. As a percentage of Fintech’s revenue, Fintech’s selling, general and administrative expense increased to 64.5% from 59.7%was 59.9%, 66.8%, and 62.3% in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively.
Depreciation and Amortization. Depreciation and amortization expense increased in each of fiscal 20212023 and fiscal 2022 compared to the prior fiscal 2020year primarily due to increased depreciation of capitalized costs of consultants and employees developing internal use software and increased depreciation of NRS’ POS equipment.software.
net2phone-UCaaSOther Operating Gain (Expense). In fiscal 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. In addition, in fiscal 2023, fiscal 2022, and fiscal 2021, Leaf received payments of $0.4 million, $20,000, and nil, respectively, from government grants for the development and commercialization of blockchain-backed financial technologies.
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net2phone Segment
The net2phone-UCaaSnet2phone segment, which represented 3.0%5.8%, 4.3%, and 2.4%3.1% of our total revenues in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively, comprisesis comprised of net2phone’s cloud communications offerings, which were previously included in our net2phone segment.and contact center offerings.
| (in millions) | 2023 change from 2022 | 2022 change from 2021 | ||||||||||||||||||||||||||
| Year ended July 31 | 2023 | 2022 | 2021 | $ | % | $ | % | |||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||
| Subscription | $ | 66.8 | $ | 53.6 | $ | 38.8 | $ | 13.2 | 24.8 | % | $ | 14.8 | 38.0 | % | ||||||||||||||
| Other | 5.6 | 4.6 | 5.7 | 1.0 | 20.3 | (1.1 | ) | (18.7 | ) | |||||||||||||||||||
| Total revenues | 72.4 | 58.2 | 44.5 | 14.2 | 24.4 | 13.7 | 30.7 | |||||||||||||||||||||
| Direct cost of revenues | (12.0 | ) | (10.0 | ) | (8.7 | ) | 2.0 | 19.6 | 1.3 | 15.9 | ||||||||||||||||||
| Selling, general and administrative | (57.4 | ) | (54.2 | ) | (46.1 | ) | 3.2 | 5.8 | 8.1 | 17.4 | ||||||||||||||||||
| Depreciation and amortization | (5.6 | ) | (5.4 | ) | (5.1 | ) | 0.2 | 4.4 | 0.3 | 6.4 | ||||||||||||||||||
| Severance | (0.1 | ) | — | — | 0.1 | nm | — | — | ||||||||||||||||||||
| Other operating (expense) gain, net | (0.1 | ) | 0.3 | (0.1 | ) | 0.4 | 145.4 | (0.4 | ) | (393.2 | ) | |||||||||||||||||
| Loss from operations | $ | (2.8 | ) | $ | (11.1 | ) | $ | (15.5 | ) | $ | 8.3 | 75.3 | % | $ | 4.4 | 28.0 | % | |||||||||||
nm—not meaningful
| (in thousands) | 2023 change from 2022 | 2022 change from 2021 | ||||||||||||||||||||||||||
| July 31 | 2023 | 2022 | 2021 | # | % | # | % | |||||||||||||||||||||
| Seats served | 352 | 291 | 226 | 61 | 21.1 | % | 65 | 28.4 | % | |||||||||||||||||||
| (in millions) | Change | |||||||||||||||
| Year ended July 31 | 2021 | 2020 | $ | % | ||||||||||||
| Revenues | $ | 43.9 | $ | 31.8 | $ | 12.1 | 38.1 | % | ||||||||
| Direct cost of revenues | 8.1 | 6.4 | 1.7 | 26.9 | ||||||||||||
| Selling, general and administrative | 45.0 | 36.3 | 8.7 | 23.7 | ||||||||||||
| Depreciation and amortization | 5.0 | 4.1 | 0.9 | 22.9 | ||||||||||||
| Other operating expense, net | 0.1 | 0.1 | — | 58.7 | ||||||||||||
| Loss from operations | $ | (14.3 | ) | $ | (15.1 | ) | $ | 0.8 | 5.4 | % | ||||||
Revenues. net2phone-UCaaS’net2phone’s revenues increased in each of fiscal 20212023 and fiscal 2022 compared to the prior fiscal 2020year driven primarily by the growth in subscription revenue in the United States, although revenue increasedU.S. and Latin American markets, which reflects the increases in all net2phone-UCaaS regions. Seatsseats served increased 47% to 226,000 at July 31, 2021 from 154,0002023 and July 31, 2022 compared to the prior fiscal year ends. The increase in seats served at July 31, 2020. Subscription revenue increased 39%2022 compared to $41.5 millionJuly 31, 2021 included approximately 7,000 seats as a result of our acquisition of Integra in fiscal 2021 from $29.9 million in fiscal 2020, led by growth in the U.S. market. net2phone-UCaaS launched its integration with Slack in the third quarter of fiscal 2021, building on its prior integrations with Zoho and Microsoft Teams. Also in fiscal 2021, net2phone-UCaaS launched an integration with Salesforce. In November 2020, net2phone-UCaaS announced it had launched its service in Peru and in December 2020, it expanded coverage to six additional cities in Brazil.March 2022.
Direct Cost of Revenues. Direct cost of revenues increased in fiscal 20212023 compared to fiscal 20202022 primarily due to the increase in revenues, with the largest increase in the U.S. market. Direct cost of revenues increased in fiscal 2022 compared to fiscal 2021 primarily due to the increase in revenues, with the largest increases in the United States and Latin America.
| Year ended July 31 | 2021 | 2020 | Change | |||||||||
| Direct cost of revenues as a percentage of revenues | 18.5 | % | 20.2 | % | (1.7 | )% | ||||||
Direct cost of revenues as a percentage of revenues decreased 170 basis points in fiscal 2021 compared to fiscal 2020 primarily because of a decrease in direct cost of revenues as a percentage of revenues in the United States. net2phone-UCaaS’American 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 fiscal 20212023 compared to fiscal 20202022 primarily due to increases in sales commissions and consulting expense. Selling, general and administrative expense increased in fiscal 2022 compared to fiscal 2021 primarily due to increases in sales commissions, employee compensation, and sales commissions.expenses related to the proposed (and subsequently postponed) spin-off of our net2phone cloud communications business. As a percentage of net2phone-UCaaS’net2phone’s revenues, net2phone-UCaaS’net2phone’s selling, general and administrative expensesexpense decreased to 102.4%79.2% from 114.3%93.1% and 103.7% in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, 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.
Depreciation and Amortization. The increaseincreases in depreciation and amortization expense in each of fiscal 20212023 and fiscal 2022 compared to the prior fiscal 2020year was due to increased depreciation of net2phone-UCaaS’net2phone’s telephone equipment leased to customers and increased depreciation of capitalized costs of consultants and employees developing internal use software.
Other Operating Expense,(Expense) Gain, net. In fiscal 2023, we recorded an expense of $0.1 million for telephone equipment that was taken out of service. In fiscal 2022, we determined that the requirements for a contingent consideration payment related to an acquisition in December 2019 would not be met before the expiration date. net2phone recognized a gain of $0.3 million on the write-off of this contingent consideration payment obligation. Other operating expense, net in fiscal 2021 was due to the settlement of a legal matter. Other operating expense, net in fiscal 2020 was due to the write-off of certain capitalized assets related to a cancelled project.
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Traditional Communications Segment
The Traditional Communications segment, which represented 91.8%81.0%, 87.2%, and 93.2%91.2% of our total revenues in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively, includes Mobile Top-Up,IDT Digital Payments, which enables customers to transfer airtime and bundles of airtime, messaging, and data to international and domestic mobile accounts, BOSS Revolution Calling, an international long-distance calling service marketed primarily to immigrant communities in the United States and Canada, and Carrier Services,IDT Global, a wholesale provider of international voice and SMS termination and outsourced traffic management solutions to telecoms worldwide. Traditional Communications also includes net2phone-Platform Services, which provides telephony services to cable operatorsother small businesses and other offerings that leverage a common technology platform, as well as smaller communicationsincluding early-stage business initiatives and payments offerings, manymature businesses in harvest mode. Most of the Traditional Communications segment was previously included in our Telecom & Payment Services segment except for net2phone-Platform Services, which was previously included in our net2phone segment.
Traditional Communications’ most significant revenue streams are from Mobile Top-Up,IDT Digital Payments, BOSS Revolution Calling, and Carrier Services. Mobile Top-UpIDT Global. IDT Digital Payments and BOSS Revolution Calling are sold direct-to-consumersdirectly to consumers and through distributors and retailers. We receive payments for BOSS Revolution Calling, traditional calling cards, and Mobile Top-UpIDT 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.
| (in millions) | Change | 2023 change from 2022 | 2022 change from 2021 | |||||||||||||||||||||||||||||||||||||||||
| Year ended July 31 | 2021 | 2020 | $/# | % | 2023 | 2022 | 2021 | $/# | % | $/# | % | |||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||||||||||||||
| Mobile Top-Up | $ | 461.6 | $ | 334.4 | $ | 127.2 | 38.0 | % | ||||||||||||||||||||||||||||||||||||
| IDT Digital Payments | $ | 417.1 | $ | 473.2 | $ | 461.6 | $ | (56.1 | ) | (11.9 | )% | $ | 11.6 | 2.5 | % | |||||||||||||||||||||||||||||
| BOSS Revolution Calling | 455.2 | 468.3 | (13.1 | ) | (2.8 | ) | 322.1 | 387.9 | 455.2 | (65.8 | ) | (17.0 | ) | (67.3 | ) | (14.8 | ) | |||||||||||||||||||||||||||
| Carrier Services | 361.0 | 394.3 | (33.3 | ) | (8.5 | ) | ||||||||||||||||||||||||||||||||||||||
| IDT Global | 230.3 | 292.4 | 361.0 | (62.1 | ) | (21.2 | ) | (68.6 | ) | (19.0 | ) | |||||||||||||||||||||||||||||||||
| Other | 50.9 | 57.1 | (6.2 | ) | (10.8 | ) | 33.2 | 36.5 | 42.3 | (3.3 | ) | (8.8 | ) | (5.8 | ) | (13.7 | ) | |||||||||||||||||||||||||||
| Total revenues | 1,328.7 | 1,254.1 | 74.6 | 6.0 | 1,002.7 | 1,190.0 | 1,320.1 | (187.3 | ) | (15.7 | ) | (130.1 | ) | (9.9 | ) | |||||||||||||||||||||||||||||
| Direct cost of revenues | (1,119.8 | ) | (1,058.4 | ) | (61.4 | ) | (5.8 | ) | (818.2 | ) | (991.2 | ) | (1,118.7 | ) | (173.0 | ) | (17.4 | ) | (127.5 | ) | (11.4 | ) | ||||||||||||||||||||||
| Selling, general and administrative | (118.1 | ) | (134.1 | ) | 16.0 | 11.9 | (107.0 | ) | (113.3 | ) | (109.3 | ) | (6.3 | ) | (5.5 | ) | 4.0 | 3.7 | ||||||||||||||||||||||||||
| Depreciation and amortization | (11.0 | ) | (14.7 | ) | 3.7 | 25.6 | (9.4 | ) | (9.5 | ) | (10.6 | ) | (0.1 | ) | (1.0 | ) | (1.1 | ) | (10.1 | ) | ||||||||||||||||||||||||
| Severance | (0.4 | ) | (3.5 | ) | 3.1 | 87.0 | (0.9 | ) | (0.1 | ) | (0.5 | ) | 0.8 | nm | (0.4 | ) | (87.5 | ) | ||||||||||||||||||||||||||
| Other operating gain (expense), net | 0.6 | (4.5 | ) | 5.1 | 112.6 | |||||||||||||||||||||||||||||||||||||||
| Other operating (expense) gain, net | (5.9 | ) | (0.1 | ) | 1.0 | 5.8 | nm | 1.1 | 110.6 | |||||||||||||||||||||||||||||||||||
| Income from operations | $ | 80.0 | $ | 38.9 | $ | 41.1 | 105.4 | % | $ | 61.3 | $ | 75.8 | $ | 82.0 | $ | (14.5 | ) | (19.2 | )% | $ | (6.2 | ) | (7.6 | )% | ||||||||||||||||||||
| Minutes of use: | ||||||||||||||||||||||||||||||||||||||||||||
| BOSS Revolution Calling | 3,554 | 3,913 | (359 | ) | (9.2 | )% | 2,299 | 2,926 | 3,554 | (627 | ) | (21.4 | )% | (628 | ) | (17.7 | )% | |||||||||||||||||||||||||||
| Carrier Services | 10,511 | 14,398 | (3,887 | ) | (27.0 | ) | ||||||||||||||||||||||||||||||||||||||
| IDT Global | 6,328 | 7,720 | 10,511 | (1,392 | ) | (18.0 | ) | (2,791 | ) | (26.6 | ) | |||||||||||||||||||||||||||||||||
Revenues. Revenues from Mobile Top-UpIDT Digital Payments decreased in fiscal 2023 compared to fiscal 2022 primarily from the deterioration of a key corridor that was particularly impactful to revenues in the wholesale and retail channels. Revenues from IDT Digital Payments increased in fiscal 20212022 compared to fiscal 20202021 primarily from product expansion and continued growth across allan increase in direct-to-consumer channel revenues, partially offset by a decrease in retail channel revenues. Our acquisition of our distribution channels, including the addition of a business-to-business channelSochitel in fiscal 2021. The business-to-business channel was the main driver for Mobile Top-Up’s revenue increase in the fourth quarter of fiscal 2021. In addition, our acquisition of a mobile top-up company in December 20202021 contributed to our increased penetration into the mobile top-up market in Africa.
Revenues and minutes of use from BOSS Revolution Calling decreased in each of fiscal 20212023 and fiscal 2022 compared to the prior fiscal 2020 although COVID-19 related demand in fiscal 2021 slowed the rate of decline in BOSS Revolution Calling revenue that we have experienced in recent periods.year. 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. In fiscal 2021, COVID-19-related demand slowed the rate of decline in BOSS Revolution Calling revenue that we had experienced in prior periods. However, the COVID-19-related impact was less significant in fiscal 2022 than in fiscal 2021. The surge in demand for voice calls that began with the onset of the COVID-19 pandemic had eroded by the third quarter of fiscal 2022.
Revenues and minutes of use from Carrier ServicesIDT Global decreased in each of fiscal 20212023 and fiscal 2022 compared to the prior fiscal 2020year 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 Carrier ServicesIDT 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.
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Direct Cost of Revenues. Direct cost of revenues increaseddecreased in fiscal 20212023 compared to fiscal 20202022 primarily due to increasesdecreases in Mobile Top-Up’sIDT Global, IDT Digital Payments, and BOSS Revolution Calling’s revenues. Direct cost of revenues decreased in fiscal 2022 compared to fiscal 2021 primarily due to decreases in BOSS Revolution Calling’s and IDT Global’s revenues, partially offset by an increase in IDT Digital Payments’ direct cost of revenues in fiscal 20212022 compared to fiscal 2020 as a result2021 because of the increase in its revenues, partially offset by decreases in Carrier Services’ and BOSS Revolution Calling’s direct cost of revenues in fiscal 2021 compared to fiscal 2020.IDT Digital Payments’ revenues.
| Year ended July 31 | 2021 | 2020 | Change | |||||||||
| Direct cost of revenues as a percentage of revenues | 84.3 | % | 84.4 | % | (0.1 | )% | ||||||
Direct cost of revenues as a percentage of revenues decreased 10 basis points in fiscal 2021 compared to fiscal 2020 because of decreases in direct cost of revenues as a percentage of revenues in Mobile Top-Up and BOSS Revolution Calling in fiscal 2021 compared to fiscal 2020, mostly offset by an increase in direct cost of revenues as a percentage of revenues in Carrier Services in fiscal 2021 compared to fiscal 2020. The decreases in direct cost of revenues as a percentage of revenues in Mobile Top-Up and BOSS Revolution Calling were primarily due to the continued migration of customers to our digital platforms. The increased adoption of our digital, direct-to-consumer channels is expected to continue, which is expected to contribute to future reductions in direct cost of revenues as a percentage of revenues.
Selling, General and Administrative. Selling, general and administrative expense decreased in fiscal 20212023 compared to fiscal 20202022 primarily due to decreases in debit and credit card processing charges, sales commissions, and employee compensation, stock-based compensation, marketing expense, and bad debt expense, partially offset by an increase in debitstock-based compensation. Selling, general and credit card processing charges. Theadministrative expense increased in fiscal 2022 compared to fiscal 2021 primarily due to increases in card processing charges were the result of the shiftmarketing expense, employee compensation, and consulting expense, partially offset by a decrease in the sales of our consumer offerings from cash transactions at retailers to credit and debit card transactions through our BOSS Revolution Calling app and other digital channels.commissions. As a percentage of Traditional Communications’ revenue, Traditional Communications’ selling, general and administrative expense decreased to 8.9% fromwas 10.7%, 9.5%, and 8.3% in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively.
Depreciation and Amortization. Depreciation and amortization expense decreased in each of fiscal 20212023 and fiscal 2022 compared to the prior fiscal 2020year primarily due to decreases in depreciation as more of our property, plant, and equipment became fully depreciated, partially offset by increases in depreciation of equipment added to our telecommunications network and capitalized costs of consultants and employees developing internal use software.
Severance Expense. WeTraditional Communications incurred severance expense of $0.4$0.9 million, $0.1 million, and $3.5$0.5 million in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively.
Other Operating (Expense) Gain, (Expense), net. Other operating (expense) gain, net included $3.9 million, $0.1 million, and $0.5 million in fiscal 2023, fiscal 2022, and fiscal 2021, respectively for the indemnification of one of our cable telephony customers related to patent infringement claims brought against the customer. On May 8, 2023, we and the customer agreed to a release from the indemnification agreement in exchange for $3.9 million, of which $1.9 million was paid on May 10, 2023, and the remainder will be paid in five monthly invoice deductions of $0.4 million each. Also, in fiscal 2023, we increased the estimated fair value of acquisition-related contingent consideration by $0.2 million, and we recorded an expense of $1.4 million for internal use software that was taken out of service. Other operating (expense), gain, net in fiscal 2021 included a gain of $2.0 million received from the sale to a third party of all our rights under the Payment Card Interchange Fee and Merchant Discount Antitrust Litigation. The lawsuit is about claims that merchants paid excessive fees to accept VisaLitigation and Mastercard cards between January 1, 2004 and January 25, 2019 because Visa and Mastercard, individually, and together with their respective member banks, violated the antitrust laws. Other operating gain (expense), net also included expense for the indemnification of a net2phone cable telephony customer related to patent infringement claims brought against the customer of $0.5 million and $1.2 million in fiscal 2021 and fiscal 2020, respectively. Other operating gain (expense), net in fiscal 2021 also included expense for a settlement of a Carrier Services’ claim for $0.6 million and other expense of $0.3 million. In addition, other operating gain (expense), net in fiscal 2020 included an accrual for non-income related taxes related to one of our foreign subsidiaries of $2.2 million, a write-off of $0.6 million for certain assets primarily in Latin America, and expensethe settlement of $0.5 million for a legal matter.claim related to IDT Global.
Corporate
| (in millions) | Change | 2023 change from 2022 | 2022 change from 2021 | |||||||||||||||||||||||||||||||||||||||||
| Year ended July 31 | 2021 | 2020 | $ | % | 2023 | 2022 | 2021 | $ | % | $ | % | |||||||||||||||||||||||||||||||||
| General and administrative expenses | $ | (7.5 | ) | $ | (9.1 | ) | $ | 1.6 | 16.6 | % | ||||||||||||||||||||||||||||||||||
| General and administrative | $ | (9.3 | ) | $ | (7.8 | ) | $ | (7.5 | ) | $ | 1.5 | 18.6 | % | $ | 0.3 | 3.6 | % | |||||||||||||||||||||||||||
| Depreciation and amortization | (0.1 | ) | (0.1 | ) | — | (64.4 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | — | (30.5 | ) | — | 1.6 | ||||||||||||||||||||||||||
| Other operating gain (expense), net | 0.2 | (0.5 | ) | 0.7 | 142.4 | |||||||||||||||||||||||||||||||||||||||
| Other operating (expense) gain, net | (0.3 | ) | (1.0 | ) | 0.2 | (0.7 | ) | (67.2 | ) | 1.2 | 560.0 | |||||||||||||||||||||||||||||||||
| Loss from operations | $ | (7.4 | ) | $ | (9.7 | ) | $ | 2.3 | 23.5 | % | $ | (9.7 | ) | $ | (8.9 | ) | $ | (7.4 | ) | $ | (0.8 | ) | (8.2 | )% | $ | (1.5 | ) | (20.7 | )% | |||||||||||||||
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, charitable contributions, travel, 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 decreasedincreased in fiscal 20212023 compared to fiscal 20202022 primarily because of a decreaseincreases in audit and accounting fees, employee compensation, and stock-based compensation dueexpense. Corporate general and administrative expense increased in fiscal 2022 compared to reductions in expensefiscal 2021 primarily because of deferred stock units granted in June 2019 and stock options, as well as a decreasean increase in employee compensation. As a percentage of our consolidated revenues, Corporate general and administrative expense was 0.5%0.7%, 0.6%, and 0.7%0.5% in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively.
Other Operating (Expense) Gain, (Expense), net. 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. As discussed in Note 2223 to the Consolidated Financial Statements included in Item 8 to Part II of this Annual Report, we (as well as other defendants) have been named in a pending putative class action on behalf of Straight Path’s stockholders and a derivative complaint.stockholders. We incurred legal fees of $2.9$5.8 million, $7.7 million, and $3.6$2.9 million in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively, related to this action. Also, we recorded offsetting gains from insurance claims for this matter of $3.1$3.8 million, $6.7 million, and $3.1 million in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, 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.
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Consolidated
The following is a discussion of certain of our consolidated expenses, and our consolidated income and expense line items below income from operations.
Related Party Lease Costs. We lease office and parking space in Rafael Holdings’a building and parking garage located at 520 Broad St,Street, Newark, New Jersey.Jersey that was previously owned by Rafael Holdings. On August 22, 2022, Rafael Holdings sold the building and parking garage to an unrelated third party. Our lease in that property continues with the new owner. We also lease office space in Israel from Rafael Holdings. The Newark lease expires in April 2025 and the Israel lease expires in July 2025. In both fiscal 2021 and fiscal 2020,2023, we incurred lease costs of $1.9$0.3 million in connection with the Rafael Holdings’ leases, which isexcludes Newark lease costs after August 22, 2022. In fiscal 2022 and fiscal 2021, we incurred lease costs of $2.0 million and $1.9 million, respectively, in connection with the Rafael Holdings’ leases. Lease costs incurred in connection with the Rafael Holdings’ leases are included in consolidated selling, general and administrative expenses.expense.
Stock-Based Compensation Expense. Stock-based compensation expense included in consolidated selling, general and administrative expensesexpense was $1.5$4.5 million, $1.9 million, and $3.9$1.5 million in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively.
The decreaseincrease in stock-based compensation expense in fiscal 20212023 compared to fiscal 20202022 was primarily due to the grant of deferred stock units, or DSUs, that, upon vesting, will entitle the grantees to receive shares of our Class B common stock. In the fiscal 2023, we granted an aggregate of 0.2 million DSUs to certain of our executive officers and other employees. The number of shares that will be issuable on each vesting date will vary between 50% to 200% of the number of DSUs that vest on that vesting date, depending on the market price for the underlying Class B common stock on the vesting date relative to the base price approved by the Compensation Committee of our Board of Directors of $25.45 per share (which was based on the market price at the time of the initial grants under this program). On May 17, 2023, the first vesting date under the program, in accordance with the program and based on certain elections made by grantees, we issued 41,945 shares of our Class B common stock for vested DSUs. Based on those elections, vesting for 31,909 DSUs was delayed until February 21, 2024. Subject to continued full time employment or other service to us, the remaining DSUs are scheduled to vest on February 21, 2024 and February 25, 2025. The grantees will have the right to elect a later vesting date no later than January 19, 2024 for the February 21, 2024 vesting date. A grantee will have the option to elect a later vesting date for one-half or all of the shares scheduled to vest on February 21, 2024 and any DSUs that do not vest based on the grantee’s election, will be eligible to vest on February 25, 2025. We estimated that the fair value of the DSUs on the date of grants was an aggregate of $5.4 million, which is being recognized on a graded vesting basis over the requisite service periods ending in February 2025. We used a risk neutral Monte Carlo simulation method in our valuation of the DSUs, which simulated the range of possible future values of our Class B common stock over the life of the DSUs. The weighted average grant date fair value per DSU was $27.21. At July 31, 2023, there was $2.3 million of total unrecognized compensation cost related to non-vested DSUs.
The increase in stock-based compensation expense in fiscal 2022 compared to fiscal 2021 was primarily due to expense related to the grant in February 2022 of restricted shares of NRS’ Class B common stock to certain of our employees for which we recorded stock-based compensation expense of $1.2 million, partially offset by reductions in expense offor deferred stock units granted in June 20192019.
Effective as of June 30, 2022, restricted shares of NRS’ Class B common stock were granted to certain NRS employees. The restrictions on the shares will lapse in three installments on each of June 1, 2024, 2026, and stock options.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 July 31, 2021,2023, unrecognized compensation cost related to NRS’ non-vested stock-based compensationClass B common stock was an aggregate of $0.6$2.6 million. The unrecognized compensation cost is expected to be recognized over the remaining vesting period that ends in fiscal 2024.2027.
| (in millions) | Change | |||||||||||||||
| Year ended July 31 | 2021 | 2020 | $ | % | ||||||||||||
| Income from operations | $ | 57.0 | $ | 17.9 | $ | 39.1 | 217.6 | % | ||||||||
| Interest income, net | 0.3 | 1.1 | (0.8 | ) | (69.5 | ) | ||||||||||
| Other income (expense), net | 7.9 | (1.3 | ) | 9.2 | 724.8 | |||||||||||
| Benefit from income taxes | 31.7 | 3.7 | 28.0 | 755.9 | ||||||||||||
| Net income | 96.9 | 21.4 | 75.5 | 352.4 | ||||||||||||
| Net (income) loss attributable to noncontrolling interests | (0.4 | ) | — | (0.4 | ) | nm | ||||||||||
| Net income attributable to IDT Corporation | $ | 96.5 | $ | 21.4 | $ | 75.1 | 350.2 | % | ||||||||
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| (in millions) | 2023 change from 2022 | 2022 change from 2021 | ||||||||||||||||||||||||||
| Year ended July 31 | 2023 | 2022 | 2021 | $ | % | $ | % | |||||||||||||||||||||
| Income from operations | $ | 60.7 | $ | 60.1 | $ | 57.0 | $ | 0.6 | 1.1 | % | $ | 3.1 | 5.4 | % | ||||||||||||||
| Interest income, net | 3.2 | 0.2 | 0.3 | 3.0 | nm | (0.1 | ) | (54.1 | ) | |||||||||||||||||||
| Other (expense) income, net | (3.1 | ) | (25.4 | ) | 7.9 | 22.3 | 87.8 | (33.3 | ) | (420.3 | ) | |||||||||||||||||
| (Provision for) benefit from income taxes | (16.4 | ) | (5.9 | ) | 31.7 | (10.5 | ) | (179.7 | ) | (37.6 | ) | (118.6 | ) | |||||||||||||||
| Net income | 44.4 | 29.0 | 96.9 | 15.4 | 53.0 | (67.9 | ) | (70.1 | ) | |||||||||||||||||||
| Net income attributable to noncontrolling interests | (3.9 | ) | (2.0 | ) | (0.4 | ) | (1.9 | ) | (96.0 | ) | (1.6 | ) | (375.2 | ) | ||||||||||||||
| Net income attributable to IDT Corporation | $ | 40.5 | $ | 27.0 | $ | 96.5 | $ | 13.5 | 49.8 | % | $ | (69.5 | ) | (72.0 | )% | |||||||||||||
nm—not meaningful
Other (Expense) Income, (Expense), net. Other (expense) income, (expense), net consists of the following:
| (in millions) Year ended July 31 | 2021 | 2020 | ||||||
| Foreign currency transaction gains | $ | 1.0 | $ | 0.4 | ||||
| Equity in the net loss of investee | (1.1 | ) | — | |||||
| Write-off of tax assets related to prior periods | — | (1.3 | ) | |||||
| Gain (loss) on investments | 8.8 | (0.3 | ) | |||||
| Other | (0.8 | ) | (0.1 | ) | ||||
| TOTAL | $ | 7.9 | $ | (1.3 | ) | |||
| (in millions) Year ended July 31 | 2023 | 2022 | 2021 | |||||||||
| Foreign currency transaction gains (losses) | $ | 3.3 | $ | (1.7 | ) | $ | 1.0 | |||||
| Equity in net loss of investee | (3.1 | ) | (3.0 | ) | (1.1 | ) | ||||||
| (Losses) gains on investments | (2.6 | ) | (19.3 | ) | 8.8 | |||||||
| Other | (0.7 | ) | (1.4 | ) | (0.8 | ) | ||||||
| TOTAL | $ | (3.1 | ) | $ | (25.4 | ) | $ | 7.9 | ||||
OnAs of February 2, 2021, we paid $4.0 million to purchase shares of series Bhave an investment in convertible preferred stock of a communications company (the equity method investee, or EMI). The shares purchased representOur initial investment represented 23.95% of the outstanding shares of the EMI on an as converted basis, and on August 10, 2021, our investment increased to 26.57% of the outstanding shares of the EMI on an as converted basis. On April 6, 2023, in accordance with an Agreement and Plan of Merger dated as of April 5, 2023, the EMI merged with and into its subsidiary, with the subsidiary being the surviving corporation. Each of the EMI’s shareholders agreed to purchase additional shares of the EMI’s convertible preferred stock through May 31, 2023. Following the merger, the conversion of our notes receivable into EMI shares described below under Liquidity and Capital Resources, Investing Activities, and the purchases of the additional EMI’s shares, our ownership interest increased to 33.3% of the EMI’s outstanding shares. We account for this investment using the equity method since the series B convertible preferred stock is in-substance common stock, and we can exercise significant influence over the operating and financial policies of the EMI.EMI but we do not have a controlling interest. We determined that on the datedates of the acquisition,acquisitions, there was awere difference of $3.4 million 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 ourthe share of the EMI’s customer list on the datedates of acquisition. Thisthe acquisitions attributed to our interest in the EMI. These basis difference isdifferences are being amortized over the 6-year estimated life of the customer list. “Equity in net loss of investee” also includes the amortization of the equity method basis difference.
The gainnet losses on investments in fiscal 2023 included an unrealized loss of $7,000 on shares of Rafael Holdings’ Class B common stock. The net losses on investments in fiscal 2022 included an unrealized loss of $14.1 million on shares of Rafael Holdings’ Class B common stock. The net gains on investments in fiscal 2021 is primarily from appreciationincluded an unrealized gain of $8.3 million on shares of Rafael HoldingsHoldings’ Class B common stock, partially offset by unrealized losses on hedge funds.stock.
(Provision for) Benefit from Income Taxes. In fiscal 2021, we released $46.5 million of our valuation allowance on the portion of our deferred income tax assets that we are more likely than not going to utilize. This release was mostly related to domestic deferred income tax assets. We used the framework of ASC Income Taxes (Topic 740) to determine whether the valuation allowance should be maintained or reversed. We considered the scheduled expiration of our net operating losses included in our deferred tax assets, projected future taxable income, and tax planning strategies in our assessment of the valuation allowance. The primary factors that resulted in the valuation allowance release were the three consecutive years of profitability in the United States and expected future profitability in both the United States and the United Kingdom that will utilize a significant portion of the net operating losses. Our tax planning strategies were not a significant factor in the analysis. In fiscal 2020, due to taxable income in the United States, we utilized deferred tax assets and released the corresponding valuation allowance to offset income tax expense of $3.5 million. In addition, in fiscal 2020, we released an additional $8.4 million of the valuation allowance on the portion of the deferred tax assets that we are more likely than not going to utilize because we forecasted future profitability in the United States.
The increasechange in income tax expense in fiscal 20212023 and fiscal 2022 compared to the prior fiscal 2020,year, excluding the benefitsbenefit from the valuation allowance released in fiscal 2021, and fiscal 2020, was primarily due to differences in the amount of taxable income earned in the various taxing jurisdictions.
Net (Income) LossIncome Attributable to Noncontrolling Interests. The change in the net (income) lossincome attributable to noncontrolling interests in fiscal 20212023 compared to fiscal 20202022 was primarily due to increases in the net income of NRS and our VIE, as well as a reduction in the net loss of NRS, as well as newnet2phone 2.0. The change in the net income attributable to noncontrolling interests in fiscal 2021. In2022 compared to fiscal 2021 we acquired an aggregate of 75% of the issued shares of a company that provides a digital platform facilitating supply and distribution of mobile airtime and data top-ups and other services across borders. As of May 31, 2021, we entered into a Warrant Purchase Agreement with the shareholders of a variable interest entity, or VIE, that operates money transfer businesses. We have various management rights and protective provisions pursuantwas primarily due to the Warrant Purchase Agreement. Primarily as a result of the Warrant Purchase Agreement, we can obtain 90% of the ownership interestsincreases in the VIE. We consolidated the VIE as of May 31, 2021 because we determined that we are the primary beneficiary of the VIE since we have the power to direct the activities of the VIE that most significantly impact its economic performance, and we have the obligation to absorb losses of and the right to receive benefits from the VIE that could potentially be significant to it. We do not currently own any interest in the VIE and thus the net income incurredof NRS and our VIE, partially offset by an increase in the VIE was attributed to noncontrolling interests. Finally, on December 31, 2020, the previously approved compensatory arrangement with each of Howard S. Jonas, the Chairman of our Board of Directors, and Shmuel Jonas, our Chief Executive Officer, was finalized. Howard S. Jonas and Shmuel Jonas each received fifty restricted sharesnet loss of net2phone 2.0, Inc., or net2phone 2.0, Class B common stock, which represents 5% of the outstanding common stock of net2phone 2.0. net2phone 2.0 owns and operates our net2phone-UCaaS segment.
LIQUIDITY AND CAPITAL RESOURCES
As of the date of this Annual Report, including the impact of COVID-19, we currently expect our cash from operations and the balance of cash, cash equivalents, debt securities, and current equity investments that we held on July 31, 20212023 will be sufficient to meet our currently anticipated working capital and capital expenditure requirements during fiscal 2022.2024.
At July 31, 2021,2023, we had cash, cash equivalents, debt securities, and unrestricted current equity investments of $161.4$152.2 million and working capital (current assets in excess of current liabilities) of $48.8$93.0 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 July 31, 2021,2023, “Cash and cash equivalents” in our consolidated balance sheet included an aggregate of $15.3$20.6 million held by IDT Payment Services, Inc. and IDT Payment Services of New York, LLC that was unavailable for other purposes.
| (in millions) Year ended July 31 | 2021 | 2020 | ||||||
| Cash flows provided by (used in): | ||||||||
| Operating activities | $ | 66.6 | $ | (29.6 | ) | |||
| Investing activities | (44.1 | ) | (32.5 | ) | ||||
| Financing activities | (4.5 | ) | (5.6 | ) | ||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents | 7.7 | 11.7 | ||||||
| Increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents | $ | 25.7 | $ | (56.0 | ) | |||
Contractual Obligations and Commitments
The following table includes our anticipated material cash requirements from contractual obligations and other commitments at July 31, 2023:
| Payments due by period (in millions) | Total | Less than 1 year | 1—3 years | 4—5 years | After 5 years | |||||||||||||||
| Purchase commitments | $ | 10.8 | $ | 10.8 | $ | — | $ | — | $ | — | ||||||||||
| Connectivity obligations under service agreements | 0.6 | 0.1 | 0.5 | — | — | |||||||||||||||
| Operating leases including short-term leases | 7.0 | 3.6 | 3.0 | 0.4 | — | |||||||||||||||
| TOTAL(1) | $ | 18.4 | $ | 14.5 | $ | 3.5 | $ | 0.4 | $ | — | ||||||||||
| (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 $27.1 million in performance bonds, and up to $9.0 million for other potential payments including contingent consideration related to business acquisitions, due to the uncertainty of the amount and/or timing of any such payments. |
Consolidated Financial Condition
| (in millions) Year ended July 31 | 2023 | 2022 | 2021 | |||||||||
| Cash flows provided by (used in): | ||||||||||||
| Operating activities | $ | 54.1 | $ | 29.4 | $ | 66.6 | ||||||
| Investing activities | (33.4 | ) | (33.8 | ) | (44.1 | ) | ||||||
| Financing activities | (15.8 | ) | (15.6 | ) | (4.5 | ) | ||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents | 4.4 | (17.4 | ) | 7.7 | ||||||||
| Increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents | $ | 9.3 | $ | (37.4 | ) | $ | 25.7 | |||||
Operating Activities
Our cash flows from operations vary 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 increaseddecreased to $51.1$37.7 million at July 31, 20212023 from $50.3$44.9 million at July 31, 20202022 primarily due to collections in fiscal 2023 that were greater than amounts billed during fiscal 2023. Gross trade accounts receivable increased to $44.9 million at July 31, 2022 from $39.0 million at July 31, 2021 primarily due to amounts billed during fiscal 20212022 that were greater than collections in fiscal 2021.2022.
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 increaseddecreased to $35.3 million at July 31, 2023 from $36.5 million at July 31, 2022 and $42.3 million at July 31, 2021 from $40.1 million at July 31, 2020 primarily due to an increasedecreases in the BOSS Revolution Calling and IDT Digital Payments deferred revenue balance.balances.
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Customer deposit liabilities at IDT Financial Services Limited, our Gibraltar-based bank,IDTFS increased to $86.5 million at July 31, 2023 from $85.8 million at July 31, 2022 and decreased tofrom $115.5 million at July 31, 2021 from $116.0 million at July 31, 2020.2021. Our restricted cash and cash equivalents included $115.8$87.3 million, $86.6 million, and $116.3$115.8 million at July 31, 20212023, 2022, and 2020,2021, respectively, held by the bank.
Beginning in June 2019, as part of a commercial resolution, we indemnified one of our cable telephony customers related to patent infringement claims brought against the customer. On May 8, 2023, we and the customer agreed to a release from the indemnification agreement in exchange for $3.9 million, of which $1.9 million was paid on May 10, 2023, and the remainder will be paid in five monthly invoice deductions of $0.4 million each.
On December 21, 2020, we received $2.0 million from the sale to a third party of all our rights under the Payment Card Interchange Fee and Merchant Discount Antitrust Litigation. The lawsuit is aboutLitigation related to claims that merchants paid excessive fees to accept Visa and Mastercard cards between January 1, 2004 and January 25, 2019 because Visa and Mastercard, individually, and together with their respective member banks, violated the antitrust laws.2019.
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. We have evaluated our state tax filings with respect to the Wayfair decision and are in the process of reviewing our remittance practices. 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 23 to the Consolidated Financial Statements included in Item 8 to Part II of this Annual Report, we (as well as other defendants) have been 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 $22.0 million in fiscal 2023, $21.9 million in fiscal 2022, and $16.8 million in fiscal 2021 compared to $16.0 million in fiscal 2020.2021. We currently anticipate that total capital expenditures in fiscal 20222024 will be $18$21 million to $20$23 million. We expect to fund our capital expenditures with our net cash provided by operating activities and cash, cash equivalents, debt securities, and current equity investments on hand.
On DecemberMarch 3, 2020,2022, net2phone 2.0 purchased all of the outstanding shares of Onwaba S.R.L. and Gem S.R.L. for cash of $7.1 million, net of cash acquired. We also recorded an aggregate of $4.5 million for the estimated fair value of future payments subject to holdback and contingent consideration. Onwaba S.R.L. and Gem S.R.L. are located in Uruguay and use the trade name Integra. The purchase price also included 27,765 shares of our Class B common stock with a value of $1.0 million that were issued at closing. The potential future payments were an aggregate of up to $3.3 million, half of which was paid in fiscal 2023 at the end of 12 months after closing and the remainder will be paid at the end of 24 months after closing, subject to holdback for the settlement of claims against the sellers, if any. The contingent consideration is an aggregate of up to $3.5 million based on annual cumulative incremental recurring seat revenue of the net2phone segment over a four-year period, payable in cash and/or equity at net2phone 2.0’s discretion.
On March 1, 2022, our subsidiary, IDT International Telecom, Inc., or IDTIT, purchased all of the outstanding shares of Leaf for cash of $0.3 million, net of cash acquired. We also recorded $3.3 million for the estimated fair value of contingent consideration. The contingent consideration was an aggregate of up to $5.5 million based on annual gross profit over a five-year period. In fiscal 2023, we determined that the requirements for a portion of the contingent consideration payments related to the Leaf acquisition would not be met. We recorded a gain of $1.6 million on the write-off of this contingent consideration payment obligation, which was included in “Other operating (expense) gain, net” in the accompanying consolidated statements of income.
On December 3, 2020, IDTIT acquired 51% of the issued shares of a companySochitel for $2.4 million, net of cash acquired. We also recorded $0.4 million for the estimated fair value of contingent consideration. TheIn fiscal 2023, we paid contingent consideration of $0.5 million will be paid (a) no later than November 30, 2021 if the acquired company generates EBITDA (as definedand recorded an expense of $0.1 million, which was included in “Other operating (expense) gain, net” in the purchase agreement)accompanying consolidated statements of no less than $1.0 million between October 1, 2020 and September 30, 2021; or (b) no later than November 30, 2022 if the acquired company generates EBITDA of no less than $1.0 million between October 1, 2021 and September 30, 2022. Also, pursuantincome. Pursuant to a Put/Call Option Agreement related to the 5% of the issued shares of the acquired companySochitel that the seller did not initially sell to IDTIT, or the Option Shares, the seller exercised its option and on March 22, 2021, IDTIT purchased the Option Shares for $0.3 million. On June 15, 2021, IDTIT purchased 19% of theSochitel’s issued shares of the acquired company from the remaining noncontrolling interest holder for $1.0 million. We also recorded $0.2 million for the estimated fair value of contingent consideration. TheIn fiscal 2023, we paid contingent consideration of up to $0.3 million will be paid if the acquired company meets certain Adjusted EBITDA targets (as definedand recorded an expense of $0.1 million, which was included in “Other operating (expense) gain, net” in the purchase agreement) no later than April 1, 2023.accompanying consolidated statements of income.
On December 11, 2019, our subsidiary, net2phone, Inc. acquired 100% of the outstanding shares of Ringsouth Europa, S.L., a regional provider of cloud communications services to businesses in Spain. The cash paid for the acquisition was $0.5 million. We also recorded $0.4 million for the estimated fair value of contingent consideration. The contingent consideration includes two potential payments to the seller of $0.4 million each, based on monthly recurring revenue targets to be achieved over a 36-month period and 48-month period. The second potential payment is not contingent upon meeting the target for the first payment.
On September 29, 2021, NRS sold 862,442 shares of its Class B common stock, which represents 2.5% of its outstanding capital stock on a fully diluted basis, to Alta Fox Opportunities Fund LP, or Alta Fox, for cash of $10 million. Alta Fox has the right to request redemption of 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.
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As of May 31, 2021, we purchased a warrant from the shareholders of a VIE for cash of $0.8 million, which is included in financing activities, and a contingent payment of $0.1 million. We acquired cash of $3.3 million from the initial consolidation of the VIE, which is included in investing activities.
On December 7, 2020, we purchased from Rafael Holdings 218,245 newly issued shares of Rafael Holding’s Class B common stock and a warrant to purchase up to 43,649 shares of Rafael Holding’s Class B common stock at an exercise price of $22.91 at any time on or after December 7, 2020 and on or prior to June 6, 2022. The aggregate purchase price was $5.0 million. The purchase price was based on a per share price of $22.91, which was the closing price of Rafael Holding’s Class B common stock on the New York Stock Exchange on the trading day immediately preceding the purchase date. On March 15, 2021, we exercised the warrant in full and purchased 43,649 shares of Rafael Holding’s Class B common stock for cash of $1.0 million.
On February 2, 2021, we paid $4.0 million to purchase shares of the EMI’s series B convertible preferred stock, representingand on August 10, 2021, we paid $1.1 million to purchase additional shares of the EMI’s convertible preferred stock. The initial shares purchased represented 23.95% of the outstanding shares of the EMI on an as converted basis. On August 10, 2021, we paid $1.1 million to purchase shares of the EMI’s series C convertible preferred stock and additional shares of the EMI’s series B convertible preferred stock. TheseThe subsequent purchases increased our ownership of the EMI’s outstanding shares to 26.57% on an as converted basis. On April 6, 2023, in accordance with an Agreement and Plan of Merger dated as of April 5, 2023, the EMI merged with and into its subsidiary, with the subsidiary being the surviving corporation. 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 subsidiary’s Series A Convertible Preferred Stock, or EMI Preferred Stock. In addition, each of the EMI’s shareholders agreed to purchase additional shares of EMI Preferred Stock, for which we paid $0.9 million in fiscal 2023 to purchase the additional shares. Following the merger, the conversions, and the purchases of additional shares of EMI Preferred Stock, the Company’s ownership increased to 33.3% of the EMI’s outstanding shares. As of July 27, 2023, the EMI’s shareholders including us agreed to purchase additional shares of EMI Preferred Stock. We subscribed to purchase additional shares for an aggregate of $1.0 million. In the first quarter of fiscal 2024 through October 11, 2023, the Company paid $0.7 million to purchase the shares.
Purchases of debt securities and equity investments were $43.2$59.9 million, $24.5 million, and $22.4$43.2 million in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively. Proceeds from maturities and sales of debt securities and redemptions of equity investments were $26.2$49.2 million, $21.2 million, and $6.5$26.2 million in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively.
Financing Activities
We distributed cash of $0.9$0.3 million, $0.5 million, and $0.9$0.8 million in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively, to the noncontrolling interests in certain of our subsidiaries.
In fiscal 20212023, fiscal 2022, and fiscal 2020,2021, we received proceeds from financing-related other liabilities of $0.7$0.3 million, $2.3 million, and nil,$0.7 million, respectively.
In fiscal 20212023, fiscal 2022, and fiscal 2020,2021, we repaid financing-related other liabilities of $0.1$2.0 million, $1.3 million, and $0.5$0.1 million, respectively.
On April 20, 2020, our subsidiary, IDT Domestic Telecom, Inc., or IDT DT, received loan proceedsSeptember 29, 2021, NRS sold shares of $10.0 million from TD Bank, N.A., pursuant to the Paycheck Protection Program, or the PPP Loan, under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, administered by the U.S. Small Business Administration. On April 29, 2020, IDT DT returned all $10.0 million in proceeds from the PPP Loan.
In fiscal 2021 and fiscal 2020, we received proceeds from the exercise of stock options of $0.7 million and $0.3 million, respectively, for which we issued 81,041 and 32,551 shares, respectively, of ourits Class B common stock.stock representing 2.5% of its outstanding capital stock on a fully diluted basis to Alta Fox Opportunities Fund LP, or Alta Fox, for cash of $10 million. Alta Fox has the right to request that NRS redeem all or any portion of the NRS common shares that it purchased at the per share purchase price during a period of 182 days following the fifth anniversary of this transaction. The redemption right shall terminate upon the consummation of (i) a sale of NRS or its assets for cash or securities that are listed on a national securities exchange, (ii) a public offering of NRS’ securities, or (iii) a distribution of NRS’ capital stock following which NRS’ common shares are listed on a national securities exchange.
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 July 31, 2021,2023 and 2022, there were no amounts outstanding under this facility. In fiscal 2023 and fiscal 2022, IDT Telecom had not borrowed any amountsand repaid an aggregate of $27.4 million and $2.6 million, respectively, under thisthe facility. The revolving credit facility is secured by primarily all of IDT Telecom’s assets. The principal outstanding bears interest per annum at the Intercontinental Exchange Benchmark Administration Ltd. LIBOR multipliedsecured overnight financing rate published by the Regulation D maximum reserve requirementFederal Reserve Bank of New York plus 125 to 17510 basis points, plus depending upon IDT Telecom’s leverage ratio as computed for the most recent fiscal quarter.quarter, 125 to 175 basis points. Interest is payable monthly, and all outstanding principal and any accrued and unpaid interest is due inon May 2024.16, 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 July 31, 2021,2023, IDT Telecom was in compliance with all of the covenants.
IDT Telecom had a credit agreement, dated as In the first quarter of October 31, 2019, with TD Bank, N.A. for a revolving credit facility for up to a maximum principal amount of $25.0 million until its maturity on July 15, 2020. The principal outstanding incurred interest per annum at the LIBOR rate adjusted by the Regulation D maximum reserve requirement plus 125 basis points. In fiscal 2020,2024, we borrowed and repaid an aggregate of $1.4$25.0 million under the facility. IDT Telecom paid
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In fiscal 2023, fiscal 2022, and fiscal 2021, we received cash from the exercise of stock options of $0.2 million, $0.1 million, and $0.7 million, respectively, for which we issued 12,500; 10,000; and 81,041 shares, respectively, of our Class B common stock. In addition, in April 2022, Howard S. Jonas exercised stock options for 1.0 million shares of our Class B common stock that were granted on May 2, 2017. The exercise price of these options was $14.93 per share and the expiration date was May 1, 2022. Mr. Jonas used 528,635 shares of our Class B common stock with a quarterly unused commitment feevalue of 0.3% per annum on$14.9 million to pay the average daily balanceaggregate exercise price of the unused portion of the $25.0 million commitment.options.
We have an existing stock repurchase program authorized by our Board of Directors for the repurchase of shares of our Class B common stock. The Board of Directors authorized the repurchase of up to 8.0 million shares in the aggregate. In fiscal 2023, we repurchased 511,546 shares of Class B common stock for an aggregate purchase price of $13.1 million. In fiscal 2022, we repurchased 554,744 shares of Class B common stock for an aggregate purchase price of $13.4 million. In fiscal 2021, we repurchased 463,792 shares of Class B common stock for an aggregate purchase price of $2.8 million. In fiscal 2020, we repurchased 671,117 shares of our Class B common stock for an aggregate purchase price of $4.2 million. At July 31, 2021, 5.82023, 4.7 million shares remained available for repurchase under the stock repurchase program.
In the first quarter of fiscal 2024 through October 11, 2023, we repurchased 124,530 shares of Class B common stock for an aggregate purchase price of $2.8 million.
In fiscal 2023, fiscal 2022, and fiscal 2021, and fiscal 2020, we paid $1.3$0.8 million, $9.0 million, and $0.3$1.3 million, respectively, to repurchase 109,38128,227; 200,438; and 37,348109,381 shares, respectively, of our Class B common stock that were tendered by employees of ours to satisfy the employees’ tax withholding obligations in connection with shares issued for bonus payments, the vesting of deferred stock units, and the lapsing of restrictions on awards of deferred stock units and restricted stock. In addition, in April 2022, Mr. Jonas tendered 137,364 shares of our Class B common stock with a value of $3.9 million to satisfy a portion of his tax obligations in connection with his stock option exercises. Such shares arewere repurchased by us based on their fair market value as of the close of business on the trading day immediately prior to the vesting date.
Other Sources and Uses of Resources
We are considering spin-offs sales of equity, 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. The sale of a subsidiary’s equity in an initial public offering or other transaction would instead be a source of cash. In fiscal 2021, we announced that our Board of Directors had directed us to prepare for the potential spin-off of our net2phone cloud communications business. Management subsequently has stated that it expects the preparations will be complete by the end of calendar year 2021 or shortly thereafter. There is no assurance at this time that any of these transactions will be completed.
We intend to, where appropriate, make other strategic investments and acquisitions to complement, expand, and/or enter into new businesses. In considering acquisitions and investments, we search for opportunities to profitably grow our existing businesses and/or to add qualitatively to the range and diversification of businesses in our portfolio. At this time, weWe 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.
CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS
The following table quantifies our future contractual obligations and other commercial commitments at July 31, 2021:
Payments Due by Period
| (in millions) | Total | Less than 1 year | 1—3 years | 4—5 years | After 5 years | |||||||||||||||
| Purchase commitments | $ | 3.7 | $ | 3.7 | $ | — | $ | — | $ | — | ||||||||||
| Connectivity obligations under service agreements | 0.8 | 0.7 | 0.1 | — | — | |||||||||||||||
| Operating leases including short-term leases | 8.9 | 3.2 | 4.3 | 1.4 | — | |||||||||||||||
| TOTAL CONTRACTUAL OBLIGATIONS(1) | $ | 13.4 | $ | 7.6 | $ | 4.4 | $ | 1.4 | $ | — | ||||||||||
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any “off-balance sheet arrangements,” as defined in relevant SEC regulations that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources, other than the following.
In connection with our spin-off of Straight Path in July 2013, we and Straight Path entered into various agreements prior to the spin-off including a Separation and Distribution Agreement to effect the separation and provide a framework for our relationship with Straight Path after the spin-off, and a Tax Separation Agreement, which sets forth the responsibilities of us and Straight Path with respect to, among other things, liabilities for federal, state, local, and foreign taxes for periods before and including the spin-off, the preparation and filing of tax returns for such periods and disputes with taxing authorities regarding taxes for such periods. Pursuant to the Separation and Distribution Agreement, we indemnify Straight Path and Straight Path indemnifies us for losses related to the failure of the other to pay, perform or otherwise discharge, any of the liabilities and obligations set forth in the agreement. Pursuant to the Tax Separation Agreement, we indemnify Straight Path from all liability for taxes of Straight Path or any of its subsidiaries or relating to the Straight Path business with respect to taxable periods ending on or before the spin-off, from all liability for taxes of ours, other than Straight Path and its subsidiaries, for any taxable period, and from all liability for taxes due to the spin-off. (see Note 22 to the Consolidated Financial Statements included in Item 8 to Part II of this Annual Report).
We have 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 July 31, 2021, we had aggregate performance bonds of $19.6 million outstanding.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
SmallerForeign Currency Risk
Revenues from our international operations were 28%, 29%, and 22% of our consolidated revenues in fiscal 2023, fiscal 2022, and fiscal 2021, respectively. On February 1, 2021, we restructured certain operations for tax purposes resulting in the change of geographic sourcing of revenues from the United States to the United Kingdom. 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 companies areperiod is generally not requiredmaterial.
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Investment Risk
We hold a portion of our assets in debt and equity securities, including hedge funds, for strategic and speculative purposes. At July 31, 2023 and 2022, the value of our debt and equity security holdings was an aggregate of $58.5 million and $46.8 million, respectively, which represented 11% and 9% of our total assets at July 31, 2023 and 2022, respectively. Investments in debt and equity securities carry a degree of risk and depend to providea great extent on correct assessments of the information requiredfuture 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 this item.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 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements of the Company and the reportsreport of the independent registered public accounting firmsfirm thereon starting on page F-1 are included herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. 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 Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of July 31, 2021.
2023.
Report of Management on Internal Control over Financial Reporting
We, the management of IDT Corporation and subsidiaries (the “Company”), are responsible for establishing and maintaining adequate internal control over financial reporting of the Company.
The Company’s internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:
| 1. | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Company; |
| 2. | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
| 3. | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of July 31, 2021.2023. In making this assessment, the Company’s management used the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our internal control over financial reporting, as prescribed above, as of July 31, 2021.2023. Based on our evaluation, our principal executive officer and principal financial officer concluded that the Company’s internal control over financial reporting as of July 31, 20212023 was effective based on the criteria established in the Internal Control-Integrated Framework (2013) issued by COSO.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Grant Thornton, LLP has provided an attestation report on the Company’s internal control over financial reporting as of July 31, 2021.2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of fiscal 20212023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
IDT Corporation
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of IDT Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of July 31, 2021,2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2021,2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended July 31, 2021,2023, and our report dated October 14, 202116, 2023 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Report of Management on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
New York, New York
October 16, 2023
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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Part III
Item 10. Directors, Executive Officers and Corporate Governance.
The following is a list of our directors and executive officers along with the specific information required by Rule 14a-3 of the Securities Exchange Act of 1934:
Executive Officers
Shmuel Jonas—Chief Executive Officer
Howard S. Jonas—Chairman
Marcelo Fischer—Chief Financial Officer
Bill Pereira—President and Chief Operating Officer
Mitch Silberman—Chief Accounting Officer and Controller
Joyce J. Mason—Executive Vice President, General Counsel and Corporate Secretary
Menachem Ash—Executive Vice President of Strategy and Legal Affairs
Nadine Shea – Executive Vice President of Global Human Resources
David Wartell —Chief Technology Officer
Directors
Howard S. Jonas—Chairman of the Board
Liora Stein—CurrentMember of the Board Member
Michael Chenkin—Certified Public Accountant; previously worked in the Audit Department of Coopers and Lybrand and as a consultant to the securities industry
Eric F. Cosentino—Former Rector of the Episcopal Church of the Divine Love, Montrose, New York
Judah Schorr—Founder of Judah Schorr MD PC, an anesthesia provider to hospitals, ambulatory surgery centers and medical offices, and has been its President and owner since its inception
Bill Pereira – Ex Officio (non-voting) member of the Board
The remaining information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July 31, 2021,2022, and which is incorporated by reference herein.
Corporate Governance
We have included as exhibits to this Annual Report on Form 10-K certificates of our Chief Executive Officer and Chief Financial Officer certifying the quality of our public disclosure.
We make available free of charge through the investor relations page of our web site (www.idt.net/ir)(www.idt.net/ir) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, and all beneficial ownership reports on Forms 3, 4, and 5 filed by directors, officers and beneficial owners of more than 10% of our equity, as soon as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission. We have adopted codes of business conduct and ethics for all of our employees, including our principal executive officer, principal financial officer and principal accounting officer. Copies of the codes of business conduct and ethics are available on our web site.
Our web site and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K or our other filings with the Securities and Exchange Commission.
Item 11. Executive Compensation.
The information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July 31, 2021,2023, and which is incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July 31, 2021,2023, and which is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July 31, 2021,2023, and which is incorporated by reference herein.
Item 14. Principal AccountingAccountant Fees and Services.
The information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July 31, 2021,2023, and which is incorporated by reference herein.
Part IV
Item 15. Exhibits,Exhibit and Financial Statement Schedules.
| (a) | The following documents are filed as part of this Report: |
| 1. | Report of Management on Internal Control Over Financial Reporting |
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
Consolidated Financial Statements covered by Report of Independent Registered Public Accounting Firm
| 2. | Financial Statement Schedule. |
All schedules have been omitted since they are either included in the Notes to Consolidated Financial Statements or not required or not applicable.
| 3. | Exhibits. Exhibit Numbers 10.01, 10.02, 10.03, 10.04, |
The exhibits listed in paragraph (b) of this itemItem are filed, furnished, or incorporated by reference as part of this
Form 10-K.
Certain of the agreements filed as exhibits to this Form 10-K contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:
| ■ | may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements; |
| ■ | may apply standards of materiality that differ from those of a reasonable investor; and |
| ■ | were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances. |
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.
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| (b) | Exhibits. |
| * | filed herewith. |
| (1) | Incorporated by reference to Form 8-K, filed April 5, 2011. |
| (2) | Incorporated by reference to Form 8-K, filed |
| (3) | Incorporated by reference to Form 10-K/A, filed December 22, 2020. |
| (4) | Incorporated by reference to Form 8-K, filed December |
| (5) | Incorporated by reference to Schedule 14A, filed November 5, 2013. |
| (6) | Incorporated by reference to Form S-8, filed October |
| (7) | Incorporated by reference to Form 8-K, filed January 14, 2015. |
| (8) | Incorporated by reference to Form 8-K, filed December 5, |
Item 16. Form 10-K Summary.
None.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
| IDT CORPORATION | ||
| By: | /s/ Shmuel Jonas | |
| Shmuel Jonas Chief Executive Officer | ||
Date: October 14, 202116, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | Titles | Date | ||
| /s/ Shmuel Jonas | Chief Executive Officer | October | ||
| Shmuel Jonas | (Principal Executive Officer) | |||
| /s/ Marcelo Fischer | Chief Financial Officer | October | ||
| Marcelo Fischer | (Principal Financial Officer) | |||
| /s/ Mitch Silberman | Chief Accounting Officer and Controller | October | ||
| Mitch Silberman | (Principal Accounting Officer) | |||
| /s/ Howard S.Jonas | Chairman of the Board | October | ||
| Howard S. Jonas | ||||
| /s/ Liora Stein | Director | October | ||
| Liora Stein | ||||
| /s/ Michael Chenkin | Director | October | ||
| Michael Chenkin | ||||
| /s/ Eric F. Cosentino | Director | October | ||
| Eric F. Cosentino | ||||
| /s/ Judah Schorr | Director | October | ||
| Judah Schorr |
IDT Corporation
Index to Consolidated Financial Statements
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
IDT Corporation
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of IDT Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of July 31, 20212023 and 2020,2022, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the twothree years in the period ended July 31, 2021,2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 20212023 and 2020,2022, and the results of its operations and its cash flows for each of the twothree years in the period ended July 31, 20212023, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of July 31, 2021,2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated October 14, 202116, 2023 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2020.
New York, New York
October 14, 202116, 2023
| F-2 |
IDT CORPORATION
CONSOLIDATED BALANCE SHEETS
| July 31 (in thousands) | 2021 | 2020 | ||||||||||||||
| July 31 (in thousands, except per share data) | 2023 | 2022 | ||||||||||||||
| ASSETS | ||||||||||||||||
| CURRENT ASSETS: | ||||||||||||||||
| Cash and cash equivalents | $ | 107,147 | $ | 84,860 | $ | 103,637 | $ | 98,352 | ||||||||
| Restricted cash and cash equivalents | 119,769 | 116,362 | 95,186 | 91,210 | ||||||||||||
| Debt securities | 14,012 | 18,363 | 42,414 | 22,303 | ||||||||||||
| Equity investments | 42,434 | 5,964 | 6,198 | 17,091 | ||||||||||||
| Trade accounts receivable, net of allowance for doubtful accounts of $4,438 and $6,085 at July 31, 2021 and 2020, respectively | 46,644 | 44,166 | ||||||||||||||
| Trade accounts receivable, net of allowance for doubtful accounts of $5,642 and $5,328 at July 31, 2023 and 2022, respectively | 32,092 | 39,525 | ||||||||||||||
| Settlement assets, net of reserve of $1,143 and $554 at July 31, 2023 and 2022, respectively | 32,396 | 31,938 | ||||||||||||||
| Disbursement prefunding | 27,656 | 25,325 | 30,113 | 21,057 | ||||||||||||
| Prepaid expenses | 13,694 | 7,790 | 16,638 | 17,526 | ||||||||||||
| Other current assets | 16,779 | 19,302 | 28,394 | 23,625 | ||||||||||||
| TOTAL CURRENT ASSETS | 388,135 | 322,132 | 387,068 | 362,627 | ||||||||||||
| Property, plant, and equipment, net | 30,829 | 30,061 | 38,655 | 36,866 | ||||||||||||
| Goodwill | 14,897 | 12,858 | 26,457 | 26,380 | ||||||||||||
| Other intangibles, net | 7,578 | 3,959 | 8,196 | 9,609 | ||||||||||||
| Equity investments | 11,654 | 8,833 | 9,874 | 7,426 | ||||||||||||
| Operating lease right-of-use assets | 7,671 | 9,490 | 5,540 | 7,210 | ||||||||||||
| Deferred income tax assets, net | 41,502 | 8,512 | 24,101 | 36,701 | ||||||||||||
| Other assets | 10,389 | 8,905 | 10,919 | 10,275 | ||||||||||||
| TOTAL ASSETS | $ | 512,655 | $ | 404,750 | $ | 510,810 | $ | 497,094 | ||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY | ||||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||||
| Trade accounts payable | $ | 24,502 | $ | 25,150 | $ | 22,231 | $ | 28,543 | ||||||||
| Accrued expenses | 129,085 | 125,544 | 110,796 | 117,109 | ||||||||||||
| Deferred revenue | 42,293 | 40,114 | 35,343 | 36,531 | ||||||||||||
| Customer deposits | 115,524 | 115,992 | 86,481 | 85,764 | ||||||||||||
| Settlement liabilities | 21,495 | 17,659 | ||||||||||||||
| Other current liabilities | 27,930 | 18,070 | 17,761 | 19,466 | ||||||||||||
| TOTAL CURRENT LIABILITIES | 339,334 | 324,870 | 294,107 | 305,072 | ||||||||||||
| Operating lease liabilities | 5,473 | 7,353 | 2,881 | 4,606 | ||||||||||||
| Other liabilities | 1,234 | 1,388 | 3,354 | 6,588 | ||||||||||||
| TOTAL LIABILITIES | 346,041 | 333,611 | 300,342 | 316,266 | ||||||||||||
| Commitments and contingencies | - | - | ||||||||||||||
| Redeemable noncontrolling interest | 10,472 | 10,191 | ||||||||||||||
| EQUITY: | ||||||||||||||||
| IDT Corporation stockholders’ equity: | ||||||||||||||||
| Preferred stock, $ par value; authorized shares—; shares issued | — | — | ||||||||||||||
| Class A common stock, $ par value; authorized shares—; shares issued and shares outstanding at July 31, 2021 and 2020 | 33 | 33 | ||||||||||||||
| Class B common stock, $par value; authorized shares—; and shares issued and and shares outstanding at July 31, 2021 and 2020, respectively | 264 | 260 | ||||||||||||||
| Preferred stock, $ par value; authorized shares—; shares issued | — | — | ||||||||||||||
| Class A common stock, $ par value; authorized shares—; shares issued and shares outstanding at July 31, 2023 and 2022 | 33 | 33 | ||||||||||||||
| Class B common stock, $ par value; authorized shares—; and shares issued and and shares outstanding at July 31, 2023 and 2022, respectively | 279 | 277 | ||||||||||||||
| Common stock, value | ||||||||||||||||
| Additional paid-in capital | 278,021 | 277,443 | 301,408 | 296,005 | ||||||||||||
| Treasury stock, at cost, consisting of and shares of Class A common stock and and shares of Class B common stock at July 31, 2021 and 2020, respectively | (60,413 | ) | (56,221 | ) | ||||||||||||
| Treasury stock, at cost, consisting of and shares of Class A common stock and and shares of Class B common stock at July 31, 2023 and 2022, respectively | (115,461 | ) | (101,565 | ) | ||||||||||||
| Accumulated other comprehensive loss | (10,183 | ) | (7,410 | ) | (17,192 | ) | (11,305 | ) | ||||||||
| Accumulated deficit | (42,858 | ) | (139,333 | ) | ||||||||||||
| Retained earnings (accumulated deficit) | 24,662 | (15,830 | ) | |||||||||||||
| Total IDT Corporation stockholders’ equity | 164,864 | 74,772 | 193,729 | 167,615 | ||||||||||||
| Noncontrolling interests | 1,750 | (3,633 | ) | 6,267 | 3,022 | |||||||||||
| TOTAL EQUITY | 166,614 | 71,139 | 199,996 | 170,637 | ||||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 512,655 | $ | 404,750 | ||||||||||||
| TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY | $ | 510,810 | $ | 497,094 | ||||||||||||
See accompanying notes to consolidated financial statements.
| F-3 |
IDT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
| Year ended July 31 (in thousands, except per share data) | 2021 | 2020 | 2023 | 2022 | 2021 | |||||||||||||||
| REVENUES | $ | 1,446,990 | $ | 1,345,769 | $ | 1,238,854 | $ | 1,364,057 | $ | 1,446,990 | ||||||||||
| COSTS AND EXPENSES: | ||||||||||||||||||||
| Direct cost of revenues (exclusive of depreciation and amortization) | 1,154,048 | 1,084,009 | 875,734 | 1,034,430 | 1,154,048 | |||||||||||||||
| Selling, general and administrative (i) | 218,467 | 214,846 | 276,891 | 250,481 | 218,467 | |||||||||||||||
| Depreciation and amortization | 17,764 | 20,406 | 20,136 | 18,115 | 17,764 | |||||||||||||||
| Severance | 452 | 3,503 | 935 | 116 | 452 | |||||||||||||||
| TOTAL COSTS AND EXPENSES | 1,390,731 | 1,322,764 | 1,173,696 | 1,303,142 | 1,390,731 | |||||||||||||||
| Other operating gain (expense), net (see Note 14) | 731 | (5,063 | ) | |||||||||||||||||
| Other operating (expense) gain, net (see Note 14) | (4,415 | ) | (826 | ) | 731 | |||||||||||||||
| Income from operations | 56,990 | 17,942 | 60,743 | 60,089 | 56,990 | |||||||||||||||
| Interest income, net | 318 | 1,043 | 3,147 | 146 | 318 | |||||||||||||||
| Other income (expense), net | 7,916 | (1,267 | ) | |||||||||||||||||
| Other (expense) income, net | (3,083 | ) | (25,352 | ) | 7,916 | |||||||||||||||
| Income before income taxes | 65,224 | 17,718 | 60,807 | 34,883 | 65,224 | |||||||||||||||
| Benefit from income taxes | 31,667 | 3,700 | ||||||||||||||||||
| (Provision for) benefit from income taxes | (16,441 | ) | (5,878 | ) | 31,667 | |||||||||||||||
| NET INCOME | 96,891 | 21,418 | 44,366 | 29,005 | 96,891 | |||||||||||||||
| Net (income) loss attributable to noncontrolling interests | (416 | ) | 12 | |||||||||||||||||
| Net income attributable to noncontrolling interests | (3,874 | ) | (1,977 | ) | (416 | ) | ||||||||||||||
| NET INCOME ATTRIBUTABLE TO IDT CORPORATION | $ | 96,475 | $ | 21,430 | $ | 40,492 | $ | 27,028 | $ | 96,475 | ||||||||||
| Earnings per share attributable to IDT Corporation common stockholders: | ||||||||||||||||||||
| Basic | $ | 3.78 | $ | 0.82 | $ | 1.59 | $ | 1.05 | $ | 3.78 | ||||||||||
| Diluted | $ | 3.70 | $ | 0.81 | $ | 1.58 | $ | 1.03 | $ | 3.70 | ||||||||||
| Weighted-average number of shares used in calculation of earnings per share: | ||||||||||||||||||||
| Basic | 25,495 | 26,278 | 25,517 | 25,791 | 25,495 | |||||||||||||||
| Diluted | 26,053 | 26,441 | 25,577 | 26,356 | 26,053 | |||||||||||||||
| (i) Stock-based compensation included in selling, general and administrative expense | $ | $ | $ | |||||||||||||||||
| (i) | Stock-based compensation included in selling, general and administrative expenses |
See accompanying notes to consolidated financial statements.
| F-4 |
IDT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Year ended July 31 (in thousands) | 2021 | 2020 | 2023 | 2022 | 2021 | |||||||||||||||
| NET INCOME | $ | 96,891 | $ | 21,418 | $ | 44,366 | $ | 29,005 | $ | 96,891 | ||||||||||
| Other comprehensive (loss) income: | ||||||||||||||||||||
| Change in unrealized gain on available-for-sale securities | (51 | ) | 42 | |||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||
| Change in unrealized loss on available-for-sale securities | (99 | ) | (537 | ) | (51 | ) | ||||||||||||||
| Foreign currency translation adjustments | (2,722 | ) | (2,594 | ) | (5,788 | ) | (585 | ) | (2,722 | ) | ||||||||||
| Other comprehensive loss | (2,773 | ) | (2,552 | ) | (5,887 | ) | (1,122 | ) | (2,773 | ) | ||||||||||
| COMPREHENSIVE INCOME | 94,118 | 18,866 | 38,479 | 27,883 | 94,118 | |||||||||||||||
| Comprehensive (income) loss attributable to noncontrolling interests | (416 | ) | 12 | |||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | (3,874 | ) | (1,977 | ) | (416 | ) | ||||||||||||||
| COMPREHENSIVE INCOME ATTRIBUTABLE TO IDT CORPORATION | $ | 93,702 | $ | 18,878 | $ | 34,605 | $ | 25,906 | $ | 93,702 | ||||||||||
See accompanying notes to consolidated financial statements.
| F-5 |
IDT CORPORATION
IDT CORPORATION
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IDT Corporation Stockholders | IDT Corporation Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional Paid-In | Treasury | Accumulated Other Comprehensive | Accumulated | Noncontrolling | Total | Class A Common Stock | Class B Common Stock | Additional Paid-In | Treasury | Accumulated Other Comprehensive | (Accumulated Deficit) Retained | Noncontrolling | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Loss | Deficit | Interests | Equity | Shares | Amount | Shares | Amount | Capital | Stock | Loss | Earnings | Interests | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT JULY 31, 2019 | 3,272 | $ | 33 | 25,803 | $ | 258 | $ | 273,313 | $ | (51,739 | ) | $ | (4,858 | ) | $ | (160,763 | ) | $ | (2,687 | ) | $ | 53,557 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT JULY 31, 2020 | 3,272 | $ | 33 | 25,961 | $ | 260 | $ | 277,443 | $ | (56,221 | ) | $ | (7,410 | ) | $ | (139,333 | ) | $ | (3,633 | ) | $ | 71,139 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | 33 | — | 276 | — | — | — | — | 276 | — | — | 81 | 1 | 686 | — | — | — | — | 687 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of Class B common stock through repurchase program | — | — | — | — | — | (4,201 | ) | — | — | — | (4,201 | ) | — | — | — | — | — | (2,849 | ) | — | — | — | (2,849 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted Class B common stock purchased from employees | — | — | — | — | — | (281 | ) | — | — | — | (281 | ) | — | — | — | — | — | (1,343 | ) | — | — | — | (1,343 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued for matching contributions to the 401(k) Plan | — | — | 36 | — | 1,042 | — | — | — | — | 1,042 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Grant of restricted equity in subsidiary | — | — | — | — | (2,361 | ) | — | — | — | 2,361 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business acquisition | — | — | — | — | (276 | ) | — | — | — | 945 | 669 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of interest in variable interest entity | — | — | — | — | — | — | — | — | 2,509 | 2,509 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 125 | 2 | 3,854 | — | — | — | — | 3,856 | — | — | 301 | 3 | 1,487 | — | — | — | — | 1,490 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Grant of restricted equity in subsidiary (see Note 11). | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued for matching contributions to the 401(k) Plan | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued for matching contributions to the 401(k) Plan, shares | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business acquisition | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of interest in variable interest entity (see Note 13) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | — | (934 | ) | (934 | ) | — | — | — | — | — | — | — | — | (848 | ) | (848 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | (2,552 | ) | — | — | (2,552 | ) | — | — | — | — | — | — | (2,773 | ) | — | — | (2,773 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income for the year ended July 31, 2020 | — | — | — | — | — | — | — | 21,430 | (12 | ) | 21,418 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT JULY 31, 2020 | 3,272 | $ | 33 | 25,961 | $ | 260 | $ | 277,443 | $ | (56,221 | ) | $ | (7,410 | ) | $ | (139,333 | ) | $ | (3,633 | ) | $ | 71,139 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income for the year ended July 31, 2021 | — | — | — | — | — | — | — | 96,475 | 416 | 96,891 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT JULY 31, 2021 | 3,272 | 33 | 26,379 | 264 | 278,021 | (60,413 | ) | (10,183 | ) | (42,858 | ) | 1,750 | 166,614 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options by Howard S. Jonas | — | — | 1,000 | 10 | 14,920 | (18,788 | ) | — | — | — | (3,858 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | 10 | — | 137 | — | — | — | — | 137 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of Class B common stock through repurchase program | �� | — | — | — | — | — | (13,390 | ) | — | — | — | (13,390 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted Class B common stock purchased from employees | — | — | — | — | — | (8,974 | ) | — | — | — | (8,974 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business acquisition | — | — | 28 | — | 1,000 | — | — | — | — | 1,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 308 | 3 | 1,927 | — | — | — | — | 1,930 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | — | (514 | ) | (514 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | (1,122 | ) | — | — | (1,122 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income for the year ended July 31, 2022 | — | — | — | — | — | — | — | 27,028 | 1,786 | 28,814 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT JULY 31, 2022 | 3,272 | 33 | 27,725 | 277 | 296,005 | (101,565 | ) | (11,305 | ) | (15,830 | ) | 3,022 | 170,637 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE | 3,272 | 33 | 27,725 | 277 | 296,005 | (101,565 | ) | (11,305 | ) | (15,830 | ) | 3,022 | 170,637 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | 13 | — | 172 | — | — | — | — | 172 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of Class B common stock through repurchase program | — | — | — | — | — | (13,082 | ) | — | — | — | (13,082 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted Class B common stock purchased from employees | — | — | — | — | — | (814 | ) | — | — | — | (814 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued to certain executive officers for bonus payments | — | — | 25 | 1 | 614 | — | — | — | — | 615 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business acquisition | — | — | 3 | — | 100 | — | — | — | — | 100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 85 | 1 | 4,517 | — | — | — | — | 4,518 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | — | (348 | ) | (348 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | (5,887 | ) | — | — | (5,887 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income for the year ended July 31, 2023 | — | — | — | — | — | — | — | 40,492 | 3,593 | 44,085 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | 40,492 | 3,593 | 44,085 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT JULY 31, 2023 | 3,272 | $ | 33 | 27,851 | $ | 279 | $ | 301,408 | $ | (115,461 | ) | $ | (17,192 | ) | $ | 24,662 | $ | 6,267 | $ | 199,996 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE | 3,272 | $ | 33 | 27,851 | $ | 279 | $ | 301,408 | $ | (115,461 | ) | $ | (17,192 | ) | $ | 24,662 | $ | 6,267 | $ | 199,996 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
| F-6 |
IDT CORPORATION
IDT CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY (in thousands)—(Continued)CASH FLOWS
| IDT Corporation Stockholders | ||||||||||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional Paid-In | Treasury | Accumulated Other Comprehensive | Accumulated | Noncontrolling | Total | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Loss | Deficit | Interests | Equity | |||||||||||||||||||||||||||||||
| BALANCE AT JULY 31, 2020 | 3,272 | $ | 33 | 25,961 | $ | 260 | $ | 277,443 | $ | (56,221 | ) | $ | (7,410 | ) | $ | (139,333 | ) | $ | (3,633 | ) | $ | 71,139 | ||||||||||||||||||
| Exercise of stock options | — | — | 81 | 1 | 686 | — | — | — | — | 687 | ||||||||||||||||||||||||||||||
| Repurchases of Class B common stock through repurchase program | — | — | — | — | — | (2,849 | ) | — | — | — | (2,849 | ) | ||||||||||||||||||||||||||||
| Restricted Class B common stock purchased from employees | — | — | — | — | — | (1,343 | ) | — | — | — | (1,343 | ) | ||||||||||||||||||||||||||||
| Stock issued for matching contributions to the 401(k) Plan | — | — | 36 | — | 1,042 | — | — | — | — | 1,042 | ||||||||||||||||||||||||||||||
| Grant of restricted equity in subsidiary (see Note 20). | — | — | — | — | (2,361 | ) | — | — | — | 2,361 | — | |||||||||||||||||||||||||||||
| Business acquisition | — | — | — | — | (276 | ) | — | — | — | 945 | 669 | |||||||||||||||||||||||||||||
| Acquisition of interest in variable interest entity (see Note 13) | — | — | — | — | — | — | — | — | 2,509 | 2,509 | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 301 | 3 | 1,487 | — | — | — | — | 1,490 | ||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | — | (848 | ) | (848 | ) | ||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | (2,773 | ) | — | — | (2,773 | ) | ||||||||||||||||||||||||||||
| Net income for the year ended July 31, 2021 | — | — | — | — | — | — | — | 96,475 | 416 | 96,891 | ||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | 96,475 | 416 | 96,891 | ||||||||||||||||||||||||||||||
| BALANCE AT JULY 31, 2021 | 3,272 | $ | 33 | 26,379 | $ | 264 | $ | 278,021 | $ | (60,413 | ) | $ | (10,183 | ) | $ | (42,858 | ) | $ | 1,750 | $ | 166,614 | |||||||||||||||||||
| Year ended July 31 (in thousands) | 2023 | 2022 | 2021 | |||||||||
| OPERATING ACTIVITIES | ||||||||||||
| Net income | $ | 44,366 | $ | 29,005 | $ | 96,891 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 20,136 | 18,115 | 17,764 | |||||||||
| Deferred income taxes | 12,601 | 4,801 | (32,793 | ) | ||||||||
| Provision for doubtful accounts receivable and reserve for settlement assets | 2,198 | 2,330 | 1,782 | |||||||||
| Net unrealized loss (gain) from marketable securities | 3,368 | 18,960 | (3,262 | ) | ||||||||
| Stock-based compensation | 4,518 | 1,930 | 1,490 | |||||||||
| Other | 3,175 | 3,379 | (4,096 | ) | ||||||||
| Changes in assets and liabilities: | ||||||||||||
| Trade accounts receivable | 4,726 | (8,279 | ) | 977 | ||||||||
| Settlement assets, disbursement prefunding, prepaid expenses, other current assets, and other assets | (17,503 | ) | (21,046 | ) | (6,952 | ) | ||||||
| Trade accounts payable, accrued expenses, settlement liabilities, other current liabilities, and other liabilities | (17,216 | ) | (1,110 | ) | (264 | ) | ||||||
| Customer deposits at IDT Financial Services Limited (Gibraltar-based bank) | (4,200 | ) | (15,966 | ) | (6,906 | ) | ||||||
| Deferred revenue | (2,029 | ) | (2,712 | ) | 1,989 | |||||||
| Net cash provided by operating activities | 54,140 | 29,407 | 66,620 | |||||||||
| INVESTING ACTIVITIES | ||||||||||||
| Capital expenditures | (21,958 | ) | (21,879 | ) | (16,765 | ) | ||||||
| Payments for acquisitions, net of cash acquired | — | (7,552 | ) | (3,673 | ) | |||||||
| Cash acquired from acquisition of interest in variable interest entity | — | — | 3,336 | |||||||||
| Purchase of Rafael Holdings, Inc. Class B common stock and warrant | — | — | (5,000 | ) | ||||||||
| Exercise of warrant to purchase shares of Rafael Holdings, Inc. Class B common stock | — | — | (1,000 | ) | ||||||||
| Purchase of convertible preferred stock in equity method investment | (840 | ) | (1,051 | ) | (4,000 | ) | ||||||
| Purchases of debt securities and equity investments | (59,872 | ) | (24,454 | ) | (43,187 | ) | ||||||
| Proceeds from maturities and sales of debt securities and redemption of equity investments | 49,211 | 21,157 | 26,230 | |||||||||
| Net cash used in investing activities | (33,459 | ) | (33,779 | ) | (44,059 | ) | ||||||
| FINANCING ACTIVITIES | ||||||||||||
| Distributions to noncontrolling interests | (348 | ) | (514 | ) | (848 | ) | ||||||
| Payment for acquisition of warrant in variable interest entity | — | — | (791 | ) | ||||||||
| Proceeds from other liabilities | 300 | 2,301 | 729 | |||||||||
| Repayment of other liabilities | (2,037 | ) | (1,319 | ) | (108 | ) | ||||||
| Proceeds from sale of redeemable equity in subsidiary | — | 10,000 | — | |||||||||
| Proceeds from borrowings under revolving credit facility | 27,383 | 2,566 | — | |||||||||
| Repayments of borrowings under revolving credit facility | (27,383 | ) | (2,566 | ) | — | |||||||
| Proceeds from exercise of stock options | 172 | 137 | 687 | |||||||||
| Repurchases of Class B common stock | (13,896 | ) | (26,222 | ) | (4,192 | ) | ||||||
| Net cash used in financing activities | (15,809 | ) | (15,617 | ) | (4,523 | ) | ||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents | 4,389 | (17,365 | ) | 7,656 | ||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents | 9,261 | (37,354 | ) | 25,694 | ||||||||
| Cash, cash equivalents, and restricted cash and cash equivalents at beginning of year | 189,562 | 226,916 | 201,222 | |||||||||
| Cash, cash equivalents, and restricted cash and cash equivalents at end of year | $ | 198,823 | $ | 189,562 | $ | 226,916 | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||||||
| Cash payments made for interest | $ | 536 | $ | 461 | $ | 486 | ||||||
| Cash payments made for income taxes | $ | 777 | $ | 109 | $ | 193 | ||||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||||||
| Conversion of equity method investment’s secured promissory notes into convertible preferred stock | $ | 4,038 | $ | — | $ | — | ||||||
| Stock issued to certain executive officers for bonus payments | $ | 615 | $ | — | $ | — | ||||||
| Liabilities incurred for acquisitions | $ | — | $ | 7,849 | $ | 628 | ||||||
| Shares of the Company’s Class B common stock issued for acquisition | $ | 100 | $ | 1,000 | $ | — | ||||||
| Cashless exercise of stock options in exchange for shares of the Company’s Class B common stock | $ | — | $ | 14,930 | $ | — | ||||||
| Stock issued for matching contributions to the 401(k) Plan | $ | — | $ | — | $ | 1,042 | ||||||
See accompanying notes to consolidated financial statements.
| F-7 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS
| Year ended July 31 (in thousands) | 2021 | 2020 | ||||||
| OPERATING ACTIVITIES | ||||||||
| Net income | $ | 96,891 | $ | 21,418 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 17,764 | 20,406 | ||||||
| Deferred income taxes | (32,793 | ) | (3,805 | ) | ||||
| Provision for doubtful accounts receivable | 1,782 | 3,109 | ||||||
| Stock-based compensation | 1,490 | 3,856 | ||||||
| Other | (7,358 | ) | 352 | |||||
| Changes in assets and liabilities: | ||||||||
| Trade accounts receivable | (3,728 | ) | 11,702 | |||||
| Disbursement prefunding, prepaid expenses, other current assets, and other assets | (2,247 | ) | (1,719 | ) | ||||
| Trade accounts payable, accrued expenses, other current liabilities, and other liabilities | (264 | ) | (12,081 | ) | ||||
| Customer deposits at IDT Financial Services Limited (Gibraltar-based bank) | (6,906 | ) | (70,401 | ) | ||||
| Deferred revenue | 1,989 | (2,428 | ) | |||||
| Net cash provided by (used in) operating activities | 66,620 | (29,591 | ) | |||||
| INVESTING ACTIVITIES | ||||||||
| Capital expenditures | (16,765 | ) | (16,041 | ) | ||||
| Payments for acquisitions, net of cash acquired | (3,673 | ) | (450 | ) | ||||
| Cash acquired from acquisition of interest in variable interest entity | 3,336 | — | ||||||
| Purchase of Rafael Holdings, Inc. Class B common stock and warrant | (5,000) | — | ||||||
| Exercise of warrant to purchase shares of Rafael Holdings, Inc. Class B common stock | (1,000 | ) | — | |||||
| Purchase of series B convertible preferred stock in equity method investment | (4,000 | ) | — | |||||
| Purchases of debt securities and equity investments | (43,187 | ) | (22,429 | ) | ||||
| Proceeds from maturities and sales of debt securities and redemption of equity investments | 26,230 | 6,457 | ||||||
| Net cash used in investing activities | (44,059 | ) | (32,463 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Distributions to noncontrolling interests | (848 | ) | (934 | ) | ||||
| Payment for acquisition of warrant in variable interest entity | (791 | ) | — | |||||
| Proceeds from other liabilities | 729 | — | ||||||
| Repayment of other liabilities | (108 | ) | (510 | ) | ||||
| Proceeds from note payable | — | 10,000 | ||||||
| Repayment of note payable | — | (10,000 | ) | |||||
| Proceeds from exercise of stock options | 687 | 276 | ||||||
| Proceeds from borrowings under revolving credit facility | — | 1,429 | ||||||
| Repayments of borrowings under revolving credit facility | — | (1,429 | ) | |||||
| Repurchases of Class B common stock | (4,192 | ) | (4,482 | ) | ||||
| Net cash used in financing activities | (4,523 | ) | (5,650 | ) | ||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents | 7,656 | 11,727 | ||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents | 25,694 | (55,977 | ) | |||||
| Cash, cash equivalents, and restricted cash and cash equivalents at beginning of year | 201,222 | 257,199 | ||||||
| Cash, cash equivalents, and restricted cash and cash equivalents at end of year | $ | 226,916 | $ | 201,222 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash payments made for interest | $ | 486 | $ | 388 | ||||
| Cash payments made for income taxes | $ | 193 | $ | 60 | ||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES | ||||||||
| Liabilities incurred for acquisition | $ | 628 | $ | 375 | ||||
| Stock issued for matching contributions to the 401(k) Plan | $ | 1,042 | $ | — | ||||
See accompanying notes to consolidated financial statements.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Description of Business and Summary of Significant Accounting Policies
Description of Business
IDT Corporation (the “Company”) is a global provider of point-of-sale (“POS”) terminal-based solutions, international money remittance and other financial technology, or fintech businesses, cloud communications, and traditional communications services. The Company has 3four reportable business segments, National Retail Solutions (“NRS”), Fintech, net2phone-Unified Communications as a Service (“UCaaS”),net2phone, and Traditional Communications.
As of July 31, 2023, the Company owned 90.0% of the outstanding shares of its subsidiary, net2phone 2.0, Inc. (“net2phone 2.0”), which owns and operates the net2phone segment, and 80.0% of the outstanding shares of 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 85.8% of net2phone 2.0 and 77.7% of NRS.
Basis of Consolidation
The method of accounting applied to long-term investments, whether consolidated, equity or cost, involves an evaluation of the significant terms of each investment that explicitly grant or suggest evidence of control or influence over the operations of the investee and includes the identification of any variable interests in which the Company is the primary beneficiary. The consolidated financial statements include the Company’s controlled subsidiaries and the variable interest entity in which the Company is the primary beneficiary (see Note 13). All significant intercompany accounts and transactions between the consolidated entities are eliminated.
Reclassifications
Certain prior year amounts were reclassified to conform to the current year’s presentation:
| In the consolidated balance sheet, $25.3 million previously included in “Trade accounts receivable,” $0.5 million previously included in “Allowance for doubtful accounts,” and $7.1 million previously included in “Other current assets” at July 31, 2022 was reclassified to “Settlement assets”; | ||
| In the consolidated balance sheet, $0.6 million previously included in “Trade accounts payable,” and $17.1 million previously included in “Other current liabilities” at July 31, 2022 was reclassified to “Settlement liabilities”; and | ||
| In the consolidated statements of cash flows, cash used for “Trade accounts receivable” in the years ended July 31, 2022 and 2021 of $13.0 million and $4.7 million, respectively, was reclassified to cash used for “Settlement assets, disbursement prefunding, prepaid expenses, other current assets, and other assets”. |
Accounting for Investments
Investments in businesses that the Company does not control, but in which the Company has the ability to exercise significant influence over operating and financial matters, are accounted for using the equity method. Investments in which the Company does not have the ability to exercise significant influence over operating and financial matters are accounted for using the cost method. Investments in hedge funds are accounted for using the equity method unless the Company’s interest is so minor that it has virtually no influence over operating and financial policies, in which case these investments are accounted for using the cost method. The Company periodically evaluates its equity and cost method investments for impairment due to declines considered to be other than temporary. If the Company determines that a decline in fair value is other than temporary, then a charge to earnings is recorded in “Other (expense) income, (expense), net” in the accompanying consolidated statements of income, and a new basis in the investment is established.
Reclassifications
Certain prior year amounts in the consolidated balance sheet were reclassified to conform to the current year’s presentation as follows: $25.3 million previously included in “Prepaid expenses” was reclassified to “Disbursement prefunding” and $6.0 million previously included in “Trade accounts payable” was reclassified to “Other current liabilities.”
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.
Revenue Recognition
The Company accounts for its revenues under Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the amendments thereto (collectively referred to as Accounting Standards Codification, or “ASC” 606). The core principle of ASC 606 is that an entity should recognizerecognizes revenue to depictupon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entityCompany expects to be entitled in exchange for those goods or services, and the guidance definesin accordance with a five-step process to achieve this core principle. The five-step process is as follows: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entityCompany satisfies a performance obligation.
| F-8 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Direct Cost of Revenues
Direct cost of revenues consists primarily of termination and origination costs, toll-free costs, and network costs—including customer/carrier interconnect charges and fiber circuit charges. These costs include an estimate of charges for which invoices have not yet been received, and estimated amounts for pending disputes with other carriers. Direct cost of revenues also includes the cost of airtime top-up minutes. Direct cost of revenues excludes depreciation and amortization expense.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Debt Securities
The Company’s investments in debt securities are classified as “available-for-sale.” Available-for-sale debt securities are required to be carried at their fair value, with unrealized gains and losses (net of income taxes) that are considered temporary in nature recorded in “Accumulated other comprehensive loss” in the accompanying consolidated balance sheets. The Company uses the specific identification method in computing the gross realized gains and gross realized losses on the sales of debt securities. The Company periodically evaluates its investments in debt securities for impairment due to declines in market value considered to be other than temporary. Such impairment evaluations include, in addition to persistent, declining market prices, general economic and Company-specific evaluations. If the Company determinesdetermined that a decline in market value iswas other than temporary, then a charge to operations iswas recorded in “Other (expense) income, (expense), net” in the accompanying consolidated statements of income and a new cost basis in the investment was established.
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, loans and other instruments, entities are required to use a new forward-looking current expected credit loss model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, the concept of “other-than-temporary” impairment was replaced by a determination whether any impairment is established.a result of a credit loss or other factors. The portion of the unrealized loss that is the result of a credit loss will be recognized as an allowance and a corresponding expense recorded in “Other (expense) income, net” in the consolidated statement of income. Unrealized loss that is not the result of a credit loss will be recorded in “Accumulated other comprehensive loss” in the consolidated balance sheets. In addition, an entity is required to disclose significantly more information about allowances, credit quality indicators, and past due securities. The new provisions will be applied as a cumulative-effect adjustment to retained earnings as of August 1, 2023. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.
Equity Investments
Investments in equity securities (except those accounted for under the equity method or that result in consolidation) are measured at fair value, with changes in fair value recognized in net income. For investments in equity securities without a readily determinable fair value, the Company elects the measurement alternative and measures these investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. At each reporting date, the Company reassesses whether the investment still qualifies for this measurement alternative. Further, at each reporting date, the Company performs a qualitative assessment to evaluate whether the investment is impaired. If the qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than its carrying value, the carrying amount of the investment will be reduced and the resulting loss recognized in “Other (expense) income, (expense), net” in the accompanying consolidated statements of income in the period the impairment is identified.
On August 1, 2021,Settlement Assets and Settlement Liabilities
Settlement assets represent funds to be received for unsettled international money remittance and related value/payment transfer services. The receivables are due from financial institutions and agents for payment instruments sold and amounts advanced by the Company adopted ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Methodto certain agents for operational and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), that clarifieslocal regulatory purposes. These receivables are outstanding from the interactions between Topic 321, Topic 323, and Topic 815. The amendments in this ASU affect the applicationday of the measurement alternative for certain equity securities and the equity method of accounting, and guidance for certain forward contracts and purchased options to purchase securities, that, upon settlement or exercise, would be accounted for under the equity method of accounting. The adoptionsale of the amendmentspayment instrument until the financial institution or agent remits the funds to the Company. The Company provides an allowance for the portion of the receivable estimated to become uncollectible based on its history of collection experience, known collection issues, consumer credit card chargebacks and insufficient funds, and other matters the Company identifies in this ASU had no impact on the Company’s consolidated financial statements.its routine collection monitoring.
| F-9 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Settlement liabilities represent obligations relating to amounts payable under international money remittance and related value/payment transfer services. These obligations are recognized by the Company at the time the underlying transaction occurs. The Company records corresponding settlement assets for the funds to be received.
Disbursement Prefunding
The Company maintains relationships with disbursement partners in various countries for its money transferBOSS Money and IDT Digital Payments (formerly Mobile Top-UpTop-Up) services. The Company maintains prefunding balances with these disbursement partners, so they can satisfy the Company’s customer liabilities. The Company does not earn interest on these balances. The balances are not compensating balances and are not legally restricted.
Inventory
Inventory consists of NRS’ POS terminals that it sells to retailers. Inventory is measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Property, Plant, and Equipment and Intangible Assets
Equipment, computer software, and furniture and fixtures are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives, which rangeare as follows: equipment—5, and 7 or 20 years; computer software—2, 3 or 5 years; and furniture and fixtures—5, 7 or 10 years. Leasehold improvements are recorded at cost and are depreciated on a straight-line basis over the term of their lease or their estimated useful lives, whichever is shorter.
The fair value of non-compete agreement,Non-compete agreements, customer relationships, and tradenames acquired in a business combination accounted for under the purchase method are amortized over their estimated useful lives (see Notes 6 and 12).
The Company tests the recoverability of its property, plant, and equipment and intangible assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such asset. If the projected undiscounted future cash flows are less than the carrying value of the asset, the Company will record an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the asset. The Company generally measures fair value by considering sale prices for similar assets or by discounting estimated future cash flows from such asset using an appropriate discount rate. Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record impairments in future periods and such impairments could be material.
Goodwill
Goodwill is the excess of the acquisition cost of businessesconsideration paid for a business over the fair value of the identifiable net assets acquired. Goodwill and other indefinite lived intangible assets are not amortized. Instead, these assets are reviewed annually (or more frequently under various conditions) for impairment.impairment. The Company has the option to perform a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test. However, the Company may elect to perform the quantitative goodwill impairment test even if no indications of a potential impairment exist.
When performing its quantitative annual, or interim, goodwill impairment test the Company is comparingcompares the fair value of its reporting units with their carrying amounts. The Company would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. Additionally, the Company considers income tax effects from any tax-deductible goodwill on the carrying amount of its reporting unit when measuring the goodwill impairment loss, if applicable. The fair value of the reporting units is estimated using discounted cash flow methodologies, as well as considering third party market value indicators. The Company’s use of a discounted cash flow methodology includes estimates of future revenue based upon budgets and projections. The Company also develops estimates for future levels of gross and operating profits and projected capital expenditures. The Company’s methodology also includes the use of estimated discount rates based upon industry and competitor analysis as well as other factors. Calculating the fair value of the reporting units requires significant estimates and assumptions by management. Should the estimates and assumptions regarding the fair value of the reporting units prove to be incorrect, the Company may be required to record impairments to its goodwill in future periods and such impairments could be material.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Advertising Expense
Cost of advertising is charged to selling, general and administrative expensesexpense in the period in which it is incurred. In fiscal 20212023, fiscal 2022, and fiscal 2020,2021, advertising expense was $15.317.9 million, $17.0million, and $15.7 15.3million, respectively.
| F-10 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capitalized Internal Use Software Costs
The Company capitalizes the cost of internal-use software that has a useful life in excess of one year. These costs consist of payments made to third parties and the salaries of employees working on such software development. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensedcharged to expense in the period in which they are incurred. Capitalized internal use software costs are amortized on a straight-line basis over their estimated useful lives. Amortization expense related to such capitalized software in fiscal 20212023, fiscal 2022, and fiscal 20202021 was $12.6 13.2 million, $12.2million, and $14.6 12.6million, respectively. Unamortized capitalized internal use software costs at July 31, 20212023 and 20202022 were $16.7 18.8million and $18.1 18.7million, respectively.
Repairs and Maintenance
The Company charges the cost of repairs and maintenance, including the cost of replacing minor items not constituting substantial betterment, to selling, general and administrative expensesexpense as these costs are incurred.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries denominated in foreign currencies are translated to U.S. Dollars at end-of-period rates of exchange, and their monthly results of operations are translated to U.S. Dollars at the average rates of exchange for that month. Gains or losses resulting from such foreign currency translations are recorded in “Accumulated other comprehensive loss” in the accompanying consolidated balance sheets. Foreign currency transaction gains and losses are reported in “Other (expense) income, (expense), net” in the accompanying consolidated statements of income.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in its assessment of a valuation allowance. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.
The Company uses a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company presumes that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. Tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of tax benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset, or an increase in a deferred tax liability.
The Company classifies interest and penalties on income taxes as a component of income tax expense.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
On August 1, 2021, the Company adopted ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, that removes certain exceptions to the general principles in Topic 740, and clarifies and amends existing guidance in Topic 740. The adoption of this new standard had no impact on the Company’s consolidated financial statements.
Contingencies
The Company accrues for loss contingencies when both (a) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements and (b) the amount of loss can reasonably be estimated. When the Company accrues for loss contingencies and the reasonable estimate of the loss is within a range, the Company records its best estimate within the range. When no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount in the range. The Company discloses an estimated possible loss or a range of loss when it is at least reasonably possible that a loss may have been incurred.
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 determined 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.
| F-11 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Schedule of Weighted-average Number of Shares Used in the Calculation of Basic and Diluted Earnings Per Share
| Year ended July 31 (in thousands) | 2021 | 2020 | 2023 | 2022 | 2021 | |||||||||||||||
| Basic weighted-average number of shares | 25,495 | 26,278 | 25,517 | 25,791 | 25,495 | |||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||||||
| Stock options | 229 | 1 | 9 | 434 | 229 | |||||||||||||||
| Non-vested restricted Class B common stock | 329 | 162 | 51 | 131 | 329 | |||||||||||||||
| Diluted weighted-average number of shares | 26,053 | 26,441 | 25,577 | 26,356 | 26,053 | |||||||||||||||
Schedule of Outstanding Stock Options Excluded from the Calculation of Diluted Earnings Per Share
| Year ended July 31 (in thousands) | 2021 | 2020 | 2023 | 2022 | 2021 | |||||||||||||||
| Shares excluded from the calculation of diluted earnings per share | 535 | 1,138 | — | — | 535 | |||||||||||||||
The Company recognizes compensation expense for its grants of stock-based awards based on the estimated fair value on the grant date. Compensation cost for awards is recognized using the straight-line method over the requisite service period, which is usually the vesting period. Stock-based compensation is included in selling, general and administrative expense.
Vulnerability Due to Certain Concentrations
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, restricted cash and cash equivalents, debt securities, equity investments, and trade accounts receivable. The Company holds cash and cash equivalents at several major financial institutions, which often exceed FDIC insurance limits. Historically, the Company has not experienced any losses due to such concentration of credit risk. The Company’s temporary cash investments policy is to limit the dollar amount of investments with any one financial institution and monitor the credit ratings of those institutions. While the Company may be exposed to credit losses due to the nonperformance of the holders of its deposits, the Company does not expect the settlement of these transactions to have a material effect on its results of operations, cash flows, or financial condition.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Concentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers in various geographic regions and industry segments comprising the Company’s customer base. No single customer accounted for more than 10% of consolidated revenues in fiscal 20212023, fiscal 2022 or fiscal 2020.2021. However, the Company’s five largest customers collectively accounted for 14.5% 10.8%, 12.5%, and 12.7% 14.5% of its consolidated revenues in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively. The Company’s customers with the five largest receivable balances collectively accounted for 9.7% 16.7% and 27.1and 13.8% % of the consolidated gross trade accounts receivable at July 31, 20212023 and 2020,2022, respectively. This concentration of customers increases the Company’s risk associated with nonpayment by those customers. In an effort to reduce such risk, the Company performs ongoing credit evaluations of its significant customers. In addition, the Company attempts to mitigate the credit risk related to specific Carrier ServicesIDT Global customers by also buying services from the customer, in order to create an opportunity to offset its payables and receivables and reduce its net trade receivable exposure risk. When it is practical to do so, the Company will increase its purchases from Carrier ServicesIDT Global customers with receivable balances that exceed the Company’s applicable payables in order to maximize the offset and reduce its credit risk.
Allowance for Doubtful Accounts
The Company estimatesestimated the balance of its allowance for doubtful accounts by analyzing accounts receivable balances by age and applying historical write-off and collection trend rates. The Company’s estimates includeincluded separately providing for customer receivables based on specific circumstances and credit conditions, and when it iswas deemed probable that the balance iswas uncollectible. Account balances are written off against the allowance when it is determined that the receivable will not be recovered.
| F-12 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Effective with the adoption of ASU 2016-13 on August 1, 2023, the Company will record an expense based on a forward-looking current expected credit loss model to maintain an allowance for credit losses. When determining the allowance for trade accounts receivable, the Company will consider 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 changeCompany will also consider 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. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.
The changes in the allowance for doubtfuland reserves deducted from asset accounts is as follows:
Schedule Ofof Changes In Allowance For Doubtfuland Reserves Deducted From Asset Accounts
| Year ended July 31 (in thousands) | Balance at beginning of year | Additions charged to costs and expenses | Deductions (1) | Balance at end of year | ||||||||||||
| 2021 | ||||||||||||||||
| Reserves deducted from accounts receivable: | ||||||||||||||||
| Allowance for doubtful accounts | $ | 6,085 | $ | 1,782 | $ | (3,429 | ) | $ | 4,438 | |||||||
| 2020 | ||||||||||||||||
| Reserves deducted from accounts receivable: | ||||||||||||||||
| Allowance for doubtful accounts | $ | 5,444 | $ | 3,109 | $ | (2,468 | ) | $ | 6,085 | |||||||
| Year ended July 31 (in thousands) | Balance at beginning of year | Additions charged to costs and expenses | Deductions (1) | Balance at end of year | ||||||||||||
| 2023 | ||||||||||||||||
| Deducted from asset accounts: | ||||||||||||||||
| Allowance for doubtful accounts | $ | 5,328 | $ | 1,578 | $ | (1,264 | ) | $ | 5,642 | |||||||
| Reserve for losses on settlement assets | 554 | 620 | (31 | ) | 1,143 | |||||||||||
| Total | $ | 5,882 | $ | 2,198 | $ | (1,295 | ) | $ | 6,785 | |||||||
| 2022 | ||||||||||||||||
| Deducted from asset accounts: | ||||||||||||||||
| Allowance for doubtful accounts | $ | 4,129 | $ | 1,982 | $ | (783 | ) | $ | 5,328 | |||||||
| Reserve for losses on settlement assets | 309 | 348 | (103 | ) | 554 | |||||||||||
| Total | $ | 4,438 | $ | 2,330 | $ | (886 | ) | $ | 5,882 | |||||||
| 2021 | ||||||||||||||||
| Deducted from asset accounts: | ||||||||||||||||
| Allowance for doubtful accounts | $ | 5,540 | $ | 1,765 | $ | (3,176 | ) | $ | 4,129 | |||||||
| Reserve for losses on settlement assets | 545 | 17 | (253 | ) | 309 | |||||||||||
| Total | $ | 6,085 | $ | 1,782 | $ | (3,429 | ) | $ | 4,438 | |||||||
| (1) | Primarily uncollectible accounts written off, net of recoveries. |
Fair Value Measurements
Fair value of financial and non-financial assets and liabilities is defined as an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used to measure fair value, which prioritizes the inputs to valuation techniques used to measure fair value, is as follows:
| Level | quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| Level | quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. |
| Level | unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. |
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.
Leases
On August 1, 2019,The Company determines whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset which the Company adopted ASU No. 2016-02, Leases (Topic 842), andhas the amendments thereto, relatedright to the accounting for leases (collectively referred to as “ASC 842”) (see Note 4). ASC 842 establishescontrol. The Company records a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet on the lease commencement date for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for capitalThe ROU asset and operating leases existing at, or entered into after,lease liability are recorded based on the beginningpresent value of the earliest comparative period presented inCompany’s obligation to make payments over the financial statements, with certain practical expedients available. Entitieslease term. The present value of the lease payments is calculated using the incremental borrowing rate based on the rate of interest that the Company would have the option to continuepay to apply historical accounting under Topic 840, including its disclosure requirements, in comparative periods presented in the year of adoption. An entity that elects this option will recognize a cumulative effect adjustmentborrow an amount equal to the opening balance of retained earnings inlease payments on a collateralized basis over a similar term. The Company recognizes lease cost for its leases on a straight-line basis over the period of adoption instead of the earliest period presented.lease term.
| F-13 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company elected to apply the optional ASC 842 transition provisions beginning on August 1, 2019. Accordingly, the Company continued to apply Topic 840 prior to August 1, 2019. The Company elected the package of practical expedients for all its leases that commenced before August 1, 2019. In addition, the Company elected not to apply the recognition requirements of ASC 842 for its short-term leases. As the Company’s leases do not provide an implicit rate, nor is one readily available, the Company used its incremental borrowing rate based on information available at August 1, 2019 to determine the present value of its future minimum rental payments.
Recently Issued Accounting Standard Not Yet Adopted
In June 2016,2022, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13,2022-03, Financial Instruments—Credit LossesFair Value Measurement (Topic 326)820), Fair Value Measurement of Credit Losses on Financial Instruments,Equity Securities Subject to Contractual Sale Restrictions, that changesclarifies that a contractual restriction on the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking current expected credit loss model that generally will result in the earlier recognitionsale of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized costan equity security is not considered part of the securities. In addition, an entity will haveunit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU also requires specific disclosures related to disclose significantly more information about allowances, credit quality indicators, and past due securities. The new provisions will be applied as a cumulative-effect adjustmentequity securities that are subject to retained earnings.contractual sales restrictions. The Company will adopt the new standardamendments in this ASU prospectively on August 1, 2023.2024. The Company is evaluating the impact that the new standardthis ASU will have on its consolidated financial statements.
Note 2—Business Segment Information
As of August 1, 2020, the Company revised its reportable business segments to reflect the growth of its financial technology and cloud communications businesses and their increased contributions to the Company’s consolidated results. The Company’s 3reportable business segments, Fintech, net2phone-UCaaS, and Traditional Communications, reflect management’s approach to analyzing results, its resource allocation strategy, and its assessment of business performance. Comparative segment information has been reclassified and restated in all periods to conform to the current period presentation.
The Company’s reportable segments are distinguished by types of service, customers, and methods used to provide their services. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker. The accounting policies of the segments are the same as the accounting policies of the Company as a whole. There are no significant asymmetrical allocations to segments. The Company evaluates the performance of its business segments based primarily on income (loss) from operations.
The NRS segment 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.
The Fintech segment comprisesis comprised of BOSS Revolution Money, Transfer, a provider of international money remittance and related value/payment transfer services, and National Retail Solutionsas well as other, significantly smaller, financial services businesses, including Leaf Global Fintech Corporation (“NRS”Leaf”), operatora provider of digital wallet services in emerging markets, a nationwide point of salevariable interest entity that operates money transfer businesses, and IDT Financial Services Limited (“POS”IDT Financial Services”) network providing payment processing, digital advertising, transaction data, and ancillary services. BOSS Revolution Money Transfer and NRS were previously included in, the Company’s Telecom & Payment Services segment.Gibraltar-based bank.
The net2phone-UCaaSnet2phone segment comprisesis comprised of net2phone’s cloud communications offerings, which were previously included in the Company’s net2phone segment.and contact center offerings.
The Traditional Communications segment includes Mobile Top-Up,IDT Digital Payments, which enables customers to transfer airtime and bundles of airtime, messaging, and data to international and domestic mobile accounts, BOSS Revolution Calling, an international long-distance calling service marketed primarily to immigrant communities in the United States and Canada, and Carrier Services,IDT Global, a wholesale provider of international voice and SMS termination and outsourced traffic management solutions to telecoms worldwide. Traditional Communications also includes net2phone-Platform Services, which provides telephony services to cable operatorsother small businesses and other offerings that leverage a common technology platform, as well as smaller communicationsincluding early-stage business initiatives and payments offerings, manymature businesses in harvest mode. Most
As of August 1, 2022, the Traditional CommunicationsCompany revised its reportable business segments primarily to reflect the growth of its financial technology businesses and their increased contributions to the Company’s consolidated results. The Company’s four reportable business segments reflect management’s current approach to analyzing results, its resource allocation strategy, and its assessment of business performance. The NRS segment was previously included in the Company’s Telecom & Payment ServicesFintech segment. In addition, certain lines of business were reclassified to the Fintech segment except for net2phone-Platform Services, which was previously includedfrom the Traditional Communications segment. Comparative segment information has been reclassified and restated in all periods to conform to the Company’s net2phone segment.current period presentation.
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, business development, charitable contributions, travel, and other corporate-related general and administrative expenses. Corporate does not generate any revenues, nor does it incur any direct cost of revenues.
| F-14 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Operating results for the business segments of the Company were as follows:
Schedule of Operating Results of Business Segments
| (in thousands) | Fintech | net2phone-UCaaS | Traditional Communications | Corporate | Total | |||||||||||||||
| Year ended July 31, 2021 | ||||||||||||||||||||
| Revenues | $ | 74,343 | $ | 43,897 | $ | 1,328,750 | $ | — | $ | 1,446,990 | ||||||||||
| (Loss) income from operations | (1,462 | ) | (14,272 | ) | 80,117 | (7,393 | ) | 56,990 | ||||||||||||
| Depreciation and amortization | (1,751 | ) | (5,007 | ) | (10,930 | ) | (76 | ) | (17,764 | ) | ||||||||||
| Year ended July 31, 2020 | ||||||||||||||||||||
| Revenues | $ | 59,924 | $ | 31,781 | $ | 1,254,064 | $ | — | $ | 1,345,769 | ||||||||||
| Income (loss) from operations | 3,381 | (15,080 | ) | 39,300 | (9,659 | ) | 17,942 | |||||||||||||
| Depreciation and amortization | (1,524 | ) | (4,073 | ) | (14,763 | ) | (46 | ) | (20,406 | ) | ||||||||||
| (in thousands) | Fintech | National Retail Solutions | net2phone | Traditional Communications | Corporate | Total | ||||||||||||||||||
| Year ended July 31, 2023 | ||||||||||||||||||||||||
| Revenues | $ | 86,610 | $ | 77,115 | $ | 72,388 | $ | 1,002,741 | $ | — | $ | 1,238,854 | ||||||||||||
| (Loss) income from operations | (2,533 | ) | 14,400 | (2,755 | ) | 61,288 | (9,657 | ) | 60,743 | |||||||||||||||
| Depreciation and amortization | (2,683 | ) | (2,363 | ) | (5,608 | ) | (9,428 | ) | (54 | ) | (20,136 | ) | ||||||||||||
| Year ended July 31, 2022 | ||||||||||||||||||||||||
| Revenues | $ | 64,593 | $ | 51,299 | $ | 58,185 | $ | 1,189,980 | $ | — | $ | 1,364,057 | ||||||||||||
| (Loss) income from operations | (6,887 | ) | 11,208 | (11,132 | ) | 75,826 | (8,926 | ) | 60,089 | |||||||||||||||
| Depreciation and amortization | (2,231 | ) | (906 | ) | (5,374 | ) | (9,527 | ) | (77 | ) | (18,115 | ) | ||||||||||||
| Year ended July 31, 2021 | ||||||||||||||||||||||||
| Revenues | $ | 57,620 | $ | 24,748 | $ | 44,502 | $ | 1,320,120 | $ | — | $ | 1,446,990 | ||||||||||||
| (Loss) income from operations | (1,947 | ) | (252 | ) | (15,460 | ) | 82,042 | (7,393 | ) | 56,990 | ||||||||||||||
| Depreciation and amortization | (1,515 | ) | (519 | ) | (5,053 | ) | (10,601 | ) | (76 | ) | (17,764 | ) | ||||||||||||
Total assets for the reportable segments are not provided because a significant portion of the Company’s assets are servicingservice multiple segments and the Company does not track such assets separately by segment.
Geographic Information
Net long-lived assets and total assets held outside of the United States, which are located primarily in Western Europe, were as follows:
Schedule of Net Long-lived Assets and Total Assets by Geographic Areas
| (in thousands) | United States | Foreign Countries | Total | United States | Other Countries | Total | ||||||||||||||||||
| July 31, 2021 | ||||||||||||||||||||||||
| July 31, 2023 | ||||||||||||||||||||||||
| Long-lived assets, net | $ | 19,562 | $ | 11,267 | $ | 30,829 | $ | 25,854 | $ | 12,801 | $ | 38,655 | ||||||||||||
| Total assets | 230,126 | 282,529 | 512,655 | 267,746 | 243,064 | 510,810 | ||||||||||||||||||
| July 31, 2020 | ||||||||||||||||||||||||
| July 31, 2022 | ||||||||||||||||||||||||
| Long-lived assets, net | $ | 18,834 | $ | 11,227 | $ | 30,061 | $ | 22,732 | $ | 14,134 | $ | 36,866 | ||||||||||||
| Total assets | 102,176 | 302,574 | 404,750 | 254,839 | 242,255 | 497,094 | ||||||||||||||||||
Note 3—Revenue Recognition
Contracts with Customers
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 Revolution Money, Transfer, NRS, and net2phone-UCaaSnet2phone are technology-driven, synergistic businesses that leverage the Company’s core assets,assets. BOSS Money and revenue isNRS’ revenues are primarily recognized at a point in time, and in some cases (mainly net2phone-UCaaS)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 Mobile Top-Up,IDT Digital Payments, BOSS Revolution Calling, and Carrier Services. Mobile Top-UpIDT Global. IDT Digital Payments and BOSS Revolution Calling are sold direct-to-consumersdirect-to-consumer and through distributors and retailers.
Mobile Top-UpIDT Digital Payments
Mobile Top-UpIDT Digital Payments is sold direct-to-consumersdirect-to-consumer and through distributors and retailers in the same manner as BOSS Revolution Calling.Calling (see below). The Company does not terminate the minutes in its Mobile Top-UpIDT Digital Payments transactions. The Company’s performance obligation is to recharge (top-up) the airtime balance of a mobile account on behalf of the Company’s customer. The Company has contracts with various mobile operators or aggregators to provide the Mobile Top-UpIDT Digital Payments service. The Company determined that it is the principal in primarily all its Mobile Top-UpIDT Digital Payments transactions as the Company controls the service to top-up a mobile account on behalf of the Company’s customer. However, for the portion of its Mobile Top-UpIDT Digital Payments business where the Company has no customer service responsibilities, no inventory risk, and does not establish the price, the Company determined that, as the Company is not considered to control the arrangement, it acts as an agent of the mobile operators. The Company records gross revenues based on the amount billed to the customer when it is the principal in the arrangement and records revenue net of the associated costs incurred when it acts as an agent in the arrangement. The performance obligation is satisfied, and revenue is recognized when the recharge of the mobile account occurs. Accordingly, transfer of control happens at the point in time that the airtime is recharged, which is when the Company has a right to payment and the customer has accepted the service. Accordingly, the performance obligation is satisfied and revenue is recognized when the recharge of the mobile account occurs.
| F-15 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BOSS Revolution Calling direct-to-consumersdirect-to-consumer
BOSS Revolution Calling direct-to-consumersdirect-to-consumer is offered on a pay-as-you-go basis or in unlimited plans. The customer prepays for service in both cases, which results in a contract liability (deferred revenue). The contract term for pay-as-you-go plans is minute-to-minute thatand includes separate performance obligations for the series of material rights to renew the contract. The performance obligation is satisfied immediately after it arises, and the amount of consideration is known when the obligation is satisfied. Since the Company’s satisfaction of its performance obligation and the customer’s use of the service occur simultaneously, the Company recognizes revenue at the point in time when minutes are utilized, since the customer obtained control and the Company has a present right to payment. For unlimited plans, the Company has a stand readystand-ready obligation to provide service over time for an agreed upon term. Unlimited plans include fixed consideration over the term. Plan fees for unlimited plans are generally refundable at the request of the customer up to three days after payment if there was no usage. Since the Company’s satisfaction of its performance obligation and the customer’s use of the service occur over the term of the plan, the Company recognizes revenue over a period of time as the service is rendered. The Company uses an output method as time elapses because it reflects the pattern by which the Company satisfies its performance obligation through the transfer of service to the customer. The fixed upfront consideration is recognized evenly over the service period, which is generally 24 hours, 7 days, or one month.
BOSS Revolution Calling sold through distributors and retailers
BOSS Revolution Calling sold through distributors and retailers is the same service as BOSS Revolution Calling direct-to-consumers.sold direct-to-consumer. The Company sells capacity to international calling minutes to retailers, or to distributors who resell to retailers. The retailer or distributor is the Company’s customer in these transactions. The Company’s sales price to retailers and distributors, net of discounts, is less than the end user rate for BOSS Revolution Calling minutes. The customer or the Company may terminate their agreement at any time upon thirty days written notice without penalty. Retailers may sell BOSS Revolution Calling on a pay-as-you-go basis or in unlimited plans. As described above, for pay-as-you-go, the Company recognizes revenue at the point in time when minutes are utilized, and for unlimited plans, the Company recognizes revenue over a period of time as the service is rendered. Retailers and distributors also receive initial commissions upon sale to end users, and renewal commissions when certain end users subsequently purchase minutes directly from the Company. Initial and renewal commission payments are accounted for as a reduction of the transaction price over time as the end user uses the service.
Carrier ServicesIDT Global
Carrier ServicesIDT Global services are offered to both postpaid and prepaid customers. Postpaid customers are billed in arrears and typically consist of credit-worthy companies such as Tier 1 carriers and mobile network operators. Prepaid customers are typically smaller communications companies and independent call aggregators. There is no performance obligation until the transport and termination of international long-distance calls commences. The initial contract durations range from six months to one year, withand generally have successive extensions. During the initial term, the contract can only be terminated in certain instances (such as bankruptcy of either party, damage to the other party’s network, fraud, or breach of contract). However, no penalties are applied if the agreement is terminated in the initial term. After the initial term has expired, either party may terminate the agreement with notice of 30 days to 60 days depending on the agreement. The term of the contract is essentially minute-to-minute as there is no penalty for an early termination and no obligation to send traffic.
Each iteration is a separate optional purchase that is occurringoccurs over the contract duration (that is, minute-by-minute). The satisfaction of the performance obligation is occurring at a point in time (as the minutes are transferred) because the provision of the service and the satisfaction of the performance obligation are essentially occurring simultaneously. Revenue is recognized at the point in time upon delivery of the service.
The Company has not generally entered into contracts that have retroactive pricing features. Additionally, as the performance obligations are considered minute-by-minute obligations in the original contract, any modification of the original contract that leads to a conclusion that there is a new contract would not result in any adjustment related to the original contract’s consideration.
The Company provides discounts to its larger customers based on the expectation of a significant volume of minutes that are consistent with that class of customer in the wholesale carrier market. The discounts do not provide a material right to the customer because the customer receives the same pricing for all usage under the contract.
Carrier Services’IDT Global’s contracts may include tiered pricing based on minute volumes. The Company determined that its retroactive tiered pricing should be accounted for as variable consideration because the final transaction price is unknown until the customer completes or fails to complete the specified threshold. Currently, contracts with retroactive tiered pricing are not material. The Company estimates the amount of variable consideration to include in the transaction price only to the extent that it is probable that a subsequent change in the estimate would not result in a significant revenue reversal.
| F-16 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company enters into Notification of Reciprocal Transmission (“NORT”) transactions, in which the Company commits to purchase a specific number of wholesale carrier minutes to other specific destinations at specified rates, and the counterparty commits to purchase from the Company a specific number of minutes to specific destinations at specified rates. The number of minutes purchased and sold is not necessarily the same. The rates in these reciprocal transactions are generally not at prevailing market rates, and the amounts paid to the counterparty in excess of market rates are reflected as a reduction in revenue received from the customer. In addition, the Company enters into transactions in which it swaps minutes with another carrier. The Company recognizes revenue and the related direct cost of revenue for these reciprocal and swap transactions based on the fair value of the minutes.
Carrier Services’IDT Global’s NORT contracts include the promise of minimum guaranteed amounts of traffic. The performance obligation represents a stand ready obligation to provide the specified number of minutes over the contractual term. The initial terms of NORT contracts generally range from one month to six months. Since the Company’s satisfaction of its performance obligation of routing calls to their destination includes a minimum guaranteed amount of traffic, the Company recognizes revenue over a period of time as the service is rendered. The customer simultaneously receives and consumes the benefits provided by the Company’s performance as the Company performs. The Company uses an output method as the usage of minutes occur because it reflects the pattern by which the Company satisfies its performance obligation through the transfer of service to the customer.
National Retail Solutions
NRS earns revenue from (1) the sale of POS terminals to retailers, (2) a monthly recurring charge for its software license, software upgrades, and help desk support (collectively, the “Software services”), (3) fees for advertising on the POS terminals, (4) sales of the data collected by the POS terminals to data aggregators and others, and (5) merchant services’ commissions for the processing of credit and debit card transactions on the POS terminals.
NRS sells its POS terminals to retailers. The terminals include, at the retailer’s option, a cash register, a barcode scanner, retailer and customer-facing hi-definition screens, a receipt printer, and a credit card reader. The arrangement with the customer includes the equipment sale including embedded POS software, as well as the Software services. Each hardware component and the Software services is a separate performance obligation because each is a distinct good or service that can be obtained from alternate providers. The transaction price is allocated to each performance obligation based on the relative standalone selling price (“SSP”). The SSP reflects the amount the Company would charge for each performance obligation if it were sold separately in a standalone sale to similar customers in similar circumstances. The SSP for POS terminals is generally estimated using the residual approach. Equipment revenue is recognized at the point in time when the customer has physical possession of the POS terminal, which is when the customer can use the POS terminal and embedded software and has the risks and rewards of ownership. Revenue from the Software services is recognized ratably over the term of the contract because satisfaction of the performance obligation and the customer’s use of the service occur evenly over the term.
NRS sells advertising on the POS terminal’s high-definition screens through internal sales agents, third-party brokers, and real-time auctions on exchange platforms known as programmatic advertising. For advertising sold through its agents or a broker, as well as for a portion of its programmatic advertising, NRS is the principal because it is responsible for performing the service by delivering advertisements according to the customer’s requirements. For the portion of its programmatic advertising where NRS does not control the ad space before it is provided to the customer, NRS acts as an agent of the advertising exchange. NRS records gross revenues based on the amount billed to the customer when it is the principal in the arrangement and records revenue net of the associated costs incurred when it acts as an agent in the arrangement. The performance obligation is satisfied, and revenue is recognized during the period of time when the advertisement is broadcast on the POS terminal.
NRS captures targeted, daily data from the POS terminals that it sells to customers. The performance obligation is the provision of a data report, generally one report per POS terminal per week, where each report is a distinct good that is not interrelated with another report. Customers purchase data reports generally for an annual fee per POS terminal. The consideration is variable because it depends on the number of POS terminals selected. The performance obligation is satisfied, and revenue is recognized, at the point in time when the customer receives a data report because the customer obtains control and has the benefit of the data. The amount recognized per report is the same for each report since each report has the same standalone value to the customer.
NRS’ merchant services, called NRS PAY, enable retailers to accept and process payments made by credit and debit cards. NRS PAY revenue is a monthly fee plus a percentage of the transaction amount plus a flat rate per transaction. There is no separate charge for the credit card reader provided to the retailers, which remains NRS’ property and must be returned upon termination of NRS PAY. Merchant services are provided as an agent of the payment processor or funding bank, therefore NRS records revenue net of the associated costs incurred. The performance obligation is satisfied, and revenue is recognized when the payment is processed.
The retailers’ use of the credit card reader is a separate performance obligation that meets the definition of a lease. The lease consideration is included in the NRS PAY monthly recurring charge. NRS accounts for the non-lease and lease components as a single performance obligation in accordance with Accounting Standards Codification Revenue from Contracts with Customers (Topic 606) (“ASC 606”) because the timing and pattern of transfer of both components is the same, and the non-lease component is the predominant component.
| F-17 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
net2phone
net2phone earns revenue primarily through the provision of cloud communications service for businesses. The service is priced on a per-seat basis, and its subscription revenue is a monthly fee per seat. Revenue is primarily recognized over the monthly service period. Revenue from the sale of telephone equipment is recognized at a point in time when the equipment is delivered to the customer.
net2phone leases telephone equipment to certain customers, which is a separate performance obligation that meets the definition of a lease. The lease consideration is included in the monthly recurring charge. net2phone accounts for the non-lease and lease components as a single performance obligation in accordance with ASC 606 because the timing and pattern of transfer of both components is the same, and the non-lease component is the predominant component.
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
| Year ended July 31 (in thousands) | 2021 | 2020 | 2023 | 2022 | 2021 | |||||||||||||||
| BOSS Revolution Money Transfer | $ | 49,595 | $ | 47,944 | ||||||||||||||||
| BOSS Money | $ | 76,928 | $ | 55,561 | $ | 49,322 | ||||||||||||||
| Other | 9,682 | 9,032 | 8,298 | |||||||||||||||||
| Total Fintech | 86,610 | 64,593 | 57,620 | |||||||||||||||||
| National Retail Solutions | 24,748 | 11,980 | 77,115 | 51,299 | 24,748 | |||||||||||||||
| Total Fintech | 74,343 | 59,924 | ||||||||||||||||||
| net2phone-UCaaS | 43,897 | 31,781 | ||||||||||||||||||
| Mobile Top-Up | 461,603 | 334,424 | ||||||||||||||||||
| net2phone | 72,388 | 58,185 | 44,502 | |||||||||||||||||
| IDT Digital Payments | 417,057 | 473,215 | 461,609 | |||||||||||||||||
| BOSS Revolution Calling | 455,244 | 468,255 | 322,134 | 387,937 | 455,244 | |||||||||||||||
| Carrier Services | 360,997 | 394,334 | ||||||||||||||||||
| IDT Global | 230,281 | 292,337 | 360,996 | |||||||||||||||||
| Other | 50,906 | 57,051 | 33,269 | 36,491 | 42,271 | |||||||||||||||
| Total Traditional Communications | 1,328,750 | 1,254,064 | 1,002,741 | 1,189,980 | 1,320,120 | |||||||||||||||
| TOTAL | $ | 1,446,990 | $ | 1,345,769 | $ | 1,238,854 | $ | 1,364,057 | $ | 1,446,990 | ||||||||||
| Revenues | $ | 1,238,854 | $ | 1,364,057 | $ | 1,446,990 | ||||||||||||||
The following table shows the Company’s revenues disaggregated by geographic region, which is determined based on selling location. On July 31, 2020,February 1, 2021, the Company restructured certain operations for tax purposes resulting in the change of geographic sourcing of revenues from the Netherlands to the United States, and on February 1, 2021, geographic sourcing was changed from the United States to the United Kingdom.
Schedule of Revenues Disaggregated by Geographic Region
| (in thousands) | Fintech | National Retail Solutions | net2phone | Traditional Communications | Total | |||||||||||||||
| Year ended July 31, 2023 | ||||||||||||||||||||
| United States | $ | 83,883 | $ | 77,115 | $ | 38,029 | $ | 693,193 | $ | 892,220 | ||||||||||
| Outside the United States: | ||||||||||||||||||||
| United Kingdom | — | — | — | 267,697 | 267,697 | |||||||||||||||
| Other | 2,727 | — | 34,359 | 41,851 | 78,937 | |||||||||||||||
| Total outside the United States | 2,727 | — | 34,359 | 309,548 | 346,634 | |||||||||||||||
| TOTAL | $ | 86,610 | $ | 77,115 | $ | 72,388 | $ | 1,002,741 | $ | 1,238,854 | ||||||||||
| Year ended July 31, 2022 | ||||||||||||||||||||
| United States | $ | 62,598 | $ | 51,299 | $ | 30,283 | $ | 829,355 | $ | 973,535 | ||||||||||
| Outside the United States: | ||||||||||||||||||||
| United Kingdom | — | — | — | 311,847 | 311,847 | |||||||||||||||
| Other | 1,995 | — | 27,902 | 48,778 | 78,675 | |||||||||||||||
| Total outside the United States | 1,995 | — | 27,902 | 360,625 | 390,522 | |||||||||||||||
| TOTAL | $ | 64,593 | $ | 51,299 | $ | 58,185 | $ | 1,189,980 | $ | 1,364,057 | ||||||||||
| Year ended July 31, 2021 | ||||||||||||||||||||
| United States | $ | 57,347 | $ | 24,748 | $ | 23,093 | $ | 1,025,790 | $ | 1,130,978 | ||||||||||
| Outside the United States: | ||||||||||||||||||||
| United Kingdom | — | — | — | 241,590 | 241,590 | |||||||||||||||
| Other | 273 | — | 21,409 | 52,740 | 74,422 | |||||||||||||||
| Total outside the United States | 273 | — | 21,409 | 294,330 | 316,012 | |||||||||||||||
| TOTAL | $ | 57,620 | $ | 24,748 | $ | 44,502 | $ | 1,320,120 | $ | 1,446,990 | ||||||||||
| Revenues | $ | 57,620 | $ | 24,748 | $ | 44,502 | $ | 1,320,120 | $ | 1,446,990 | ||||||||||
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Schedule of Revenues Disaggregated by Geographic Region
| (in thousands) | Fintech | net2phone-UCaaS | Traditional Communications | Total | ||||||||||||
| Year ended July 31, 2021 | ||||||||||||||||
| United States | $ | 74,343 | $ | 23,071 | $ | 1,030,963 | $ | 1,128,377 | ||||||||
| Outside the United States: | ||||||||||||||||
| United Kingdom | — | — | 244,626 | 244,626 | ||||||||||||
| Netherlands | — | — | 28 | 28 | ||||||||||||
| Other | — | 20,826 | 53,133 | 73,959 | ||||||||||||
| Total outside the United States | — | 20,826 | 297,787 | 318,613 | ||||||||||||
| TOTAL | $ | 74,343 | $ | 43,897 | $ | 1,328,750 | $ | 1,446,990 | ||||||||
| Year ended July 31, 2020 | ||||||||||||||||
| United States | $ | 59,924 | $ | 15,490 | $ | 847,450 | $ | 922,864 | ||||||||
| Outside the United States: | ||||||||||||||||
| United Kingdom | — | 12 | 134,339 | 134,351 | ||||||||||||
| Netherlands | — | — | 210,743 | 210,743 | ||||||||||||
| Other | — | 16,279 | 61,532 | 77,811 | ||||||||||||
| Total outside the United States | — | 16,291 | 406,614 | 422,905 | ||||||||||||
| TOTAL | $ | 59,924 | $ | 31,781 | $ | 1,254,064 | $ | 1,345,769 | ||||||||
Remaining Performance Obligations
The Company does not have any significantfollowing table includes revenue by business segment expected to be recognized in the future from performance obligations satisfiedthat were unsatisfied or partially satisfied in previous reporting periods. The Company’s remaining performance obligations atunsatisfied as of July 31, 2021 and 20202023. 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 | |||||||||
| Year ending July 31: | ||||||||||||
| 2024 | $ | 6,608 | $ | 35,974 | $ | 42,582 | ||||||
| 2025 | 5,463 | 18,021 | 23,484 | |||||||||
| Thereafter | 5,433 | 6,694 | 12,127 | |||||||||
| TOTAL | $ | 17,504 | $ | 60,689 | $ | 78,193 | ||||||
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. An entity recordsThe Company would record a contract asset when revenue is recognized in advance of the entity’sits 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 Company’s revenue recognized in fiscal 2023, fiscal 2022, and fiscal 2021 from amounts included in the contract liability balance at the beginning of the period was $23.5 million, $28.2 million, and $28.7 million, respectively.
The Company estimates its expected breakage revenue by revenue stream recorded each month, based on inputs and assumptions about usage of the deferred revenue balances. The Company used its historical deferred revenue usage data by revenue stream to calculate the percentage of deferred revenue by month that will become breakage. The historical data indicated that customers utilizeutilized a very high percentage of minutes purchased in the first three months. The Company periodically reviews its estimates quarterly based on updated data and adjusts the monthly estimates accordingly.
The contract liability balances are presented in the Company’s consolidated balance sheets as “Deferred revenue”. The Company’s revenue recognized in fiscal 2021 and fiscal 2020 from amounts included in the contract liability balance at the beginning of the period was $28.7million and $32.3 million, respectively.
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 charges its direct costs to fulfill contracts to expense as incurred. The Company’s incremental costs of obtaining a contract with a customer are sales commissions paid to acquire customers. The Company applies the practical expedient whereby the Company primarily charges these costsemployees and third parties on sales to expense when incurred becauseend users. If the amortization period would bewere one year or less for the asset that would have beenbe recognized from deferring these costs.costs, the Company applies the practical expedient whereby the Company charges these costs to expense when incurred. For net2phone-UCaaSnet2phone sales, employeesthe Company defers these costs and third parties receive commissions on sales to end users. The Company amortizes the deferred coststhem over the expected customer relationship period when it is expected to exceed one year.
The Company’s costs to fulfill its contracts do not meet the criteria to be recognized as an asset, therefore these costs are charged to expense as incurred.
The Company’s deferred customer contract acquisition costs were as follows:
Schedule of Deferred Customer Contract Acquisition Costs
| July 31 (in thousands) | 2023 | 2022 | ||||||
| Deferred customer contract acquisition costs included in “Other current assets” | $ | 4,460 | $ | 4,085 | ||||
| Deferred customer contract acquisition costs included in “Other assets” | 3,734 | 3,469 | ||||||
| TOTAL | $ | 8,194 | $ | 7,554 | ||||
In fiscal 2023, fiscal 2022, and fiscal 2021, the Company’s amortization of deferred customer contract acquisition costs was $4.9 million, $4.4 million, and $3.6 million, respectively.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company’s deferred customer contract acquisition costs were as follows:
Schedule of Deferred Customer Contract Acquisition Costs
| July 31 (in thousands) | 2021 | 2020 | ||||||
| Deferred customer contract acquisition costs included in “Other current assets” | $ | 3,460 | $ | 2,350 | ||||
| Deferred customer contract acquisition costs included in “Other assets” | 3,151 | 2,384 | ||||||
| TOTAL | $ | 6,611 | $ | 4,734 | ||||
In fiscal 2021 and fiscal 2020, the Company’s amortization of deferred customer contract acquisition costs was $3.6 million and $2.4 million, respectively.
Note 4—Leases
The Company’s leases primarily consist of operating leases for office space. These leases have remaining terms from less than one yearto fourfive years. net2phone-UCaaSnet2phone also has operating leases for office equipment. Certain of these leases include 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 the options to extend or terminate the leases.any of these options.
The adoption of ASC 842 resulted in the recognition of operating lease liabilities of $12.4 million and operating ROU assets of the same amount as of August 1, 2019 based on the present value of the remaining minimum rental payments associated with the Company’s leases.
net2phone-UCaaSnet2phone is the lessee inunder equipment leases that wereare classified as capital leases under Topic 840 and are finance leases under ASC 842.leases. The assets and liabilities related to these finance leases are not material to the Company’s consolidated balance sheets.
The Company leases office and parking space from Rafael Holdings, Inc. (“Rafael”) in a building and parking garage located at 520 Broad St, Newark, New Jersey.Jersey that was previously owned by the Company’s former subsidiary, Rafael Holdings, Inc. (“Rafael”). On August 22, 2022, Rafael sold the building and parking garage to an unrelated third party. The Company’s lease in that property continues with the new owner. The Company also leases office space in Israel from Rafael. Howard S. Jonas, the Chairman of the Company (an executive officer position) and the Chairman of the Company’s Board of Directors, is also the Chairman of the Board of Directors and Executive Chairman of Rafael. The Newark lease expires in April 2025 and the Israel lease expires in July 2025.In bothfiscal 2023, fiscal 2022, and fiscal 2021, and fiscal 2020, the Company incurred lease costs of $1.9 million in connection with the Rafael leases whichof $0.3 million (which excludes Newark lease costs after August 22, 2022), $2.0 million, and $1.9 million, respectively. Lease costs incurred in connection with the Rafael leases is included in operating lease cost in the table below.
Supplemental disclosures related to the Company’s operating leases were as follows:
Schedule of Supplemental Disclosures Related to the Company's Operating Leases
| Year ended July 31 (in thousands) | 2021 | 2020 | 2023 | 2022 | 2021 | |||||||||||||||
| Operating lease cost | $ | 2,824 | $ | 2,832 | $ | 3,175 | $ | 2,901 | $ | 2,824 | ||||||||||
| Short-term lease cost | 620 | 246 | 1,095 | 1,348 | 620 | |||||||||||||||
| TOTAL LEASE COST | $ | 3,444 | $ | 3,078 | $ | 4,270 | $ | 4,249 | $ | 3,444 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||
| Operating cash flows from operating leases | $ | 3,262 | $ | 2,857 | $ | 2,779 | ||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases | $ | 2,779 | $ | 2,745 | $ | 3,262 | $ | 2,857 | $ | 2,779 | ||||||||||
Schedule of Supplemental Disclosures Related Weighted Average Operating Leases
| July 31 | 2021 | 2020 | 2023 | 2022 | ||||||||||||
| Weighted-average remaining lease term-operating leases | 3.4 years | 4.2 years | 2.3 years | 2.8 years | ||||||||||||
| Weighted-average discount rate-operating leases | 2.9 | % | 3.12 | % | 3.7 | % | 3.0 | % | ||||||||
On September 1, 2020,In fiscal 2023, fiscal 2022, and fiscal 2021, the Company entered into aobtained right-of-use assets of $1.8 million, $2.2 million, and $0.6 million, respectively, in exchange for new lease with an aggregate operating lease liability of $liabilities.
0.6 million.
The Company’s aggregate operating lease liability was as follows:
Schedule of Aggregate Operating Lease Liability
| July 31 (in thousands) | 2023 | 2022 | ||||||
| Operating lease liabilities included in “Other current liabilities” | $ | 2,861 | $ | 2,899 | ||||
| Operating lease liabilities included in noncurrent liabilities | 2,881 | 4,606 | ||||||
| TOTAL | $ | 5,742 | $ | 7,505 | ||||
| July 31 (in thousands) | 2021 | 2020 | ||||||
| Operating lease liabilities included in “Other current liabilities” | $ | 2,456 | $ | 2,350 | ||||
| Operating lease liabilities included in noncurrent liabilities | 5,473 | 7,353 | ||||||
| TOTAL | $ | 7,929 | $ | 9,703 | ||||
Future minimum maturities of operating lease liabilities were as follows:
Schedule of Future Minimum Maturities of Operating Lease Liabilities
| (in thousands) | ||||
| Year ending July 31: | ||||
| 2024 | $ | 3,028 | ||
| 2025 | 2,122 | |||
| 2026 | 507 | |||
| 2027 | 304 | |||
| 2028 | 48 | |||
| Thereafter | — | |||
| Total lease payments | 6,009 | |||
| Less imputed interest | (267 | ) | ||
| Total operating lease liabilities | $ | 5,742 | ||
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Future minimum maturities of operating lease liabilities were as follows:
Schedule of Future Minimum Maturities of Operating Lease Liabilities
| (in thousands) | ||||
| Year ending July 31: | ||||
| 2022 | $ | 2,656 | ||
| 2023 | 2,432 | |||
| 2024 | 1,844 | |||
| 2025 | 1,423 | |||
| 2026 | — | |||
| Thereafter | — | |||
| Total lease payments | 8,355 | |||
| Less imputed interest | (426 | ) | ||
| Total operating lease liabilities | $ | 7,929 | ||
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
| July 31 (in thousands) | 2021 | 2020 | 2023 | 2022 | ||||||||||||
| Cash and cash equivalents | $ | 107,147 | $ | 84,860 | $ | 103,637 | $ | 98,352 | ||||||||
| Restricted cash and cash equivalents | 119,769 | 116,362 | 95,186 | 91,210 | ||||||||||||
| TOTAL CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AND CASH EQUIVALENTS | $ | 226,916 | $ | 201,222 | $ | 198,823 | $ | 189,562 | ||||||||
At July 31, 20212023 and 2020,2022, restricted cash and cash equivalents included $115.8 87.3million and $116.3 86.6million, 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 Limited,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 Company’s Gibraltar-based bank.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 providesprovide the Company’s international money transfer services in the United States, as substantially restricted and unavailable for other purposes. At July 31, 20212023 and 2020,2022, “Cash and cash equivalents” in the Company’s consolidated balance sheets included an aggregate of $15.3 20.6million and $11.0 17.3million, respectively, held by IDT Payment Services, Inc. and IDT Payment Services of New York, LLC, that was unavailable for other purposes.
Note 6—Acquisitions
Mobile Top-Up ProviderIntegra CCS
On DecemberMarch 3, 2020, the Company’s subsidiary IDT International Telecom, Inc. (“IDTIT”) acquired 51%2022, net2phone 2.0 purchased all of the issuedoutstanding shares of a company that provides a digital platform facilitating supplyOnwaba S.R.L. and distributionGem S.R.L. for an aggregate purchase price of mobile airtimeup to $15.0 million. Onwaba S.R.L. and data top-upsGem S.R.L. are located in Uruguay and other services across borders.use the trade name Integra CCS. The operating results of the acquired companycompanies from the date of acquisition, which were not significant, are included in the Company’s consolidated financial statements.
The purchase price consisted of: (a) cash of $7.2 million that was paid at closing, (b) shares of the Company’s Class B common stock with a value of $1.0 million that were issued at closing, (c) $3.3 million, half of which was paid in fiscal 2023 at the end of 12 months after closing and the remainder will be paid at the end of 24 months after closing, subject to holdback for the settlement of claims against the sellers, if any, and (d) contingent consideration of up to $3.5 million based on annual cumulative incremental recurring seat revenue of the net2phone segment over a four-year period, payable in cash and/or equity at net2phone 2.0’s discretion.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The acquisition date fair value of the consideration consisted of the following (in thousands):following:
Schedule of Acquisition Date Fair Value of Consideration
| (in thousands) | ||||
| Cash paid | $ | 7,200 | ||
| Cash acquired | (81 | ) | ||
| Cash paid, net of cash acquired | 7,119 | |||
| Shares of the Company’s Class B common stock | 1,000 | |||
| Future payments subject to holdback | 3,158 | |||
| Contingent consideration | 1,361 | |||
| Total fair value of consideration, net of cash acquired | $ | 12,638 | ||
The acquisition-date fair value of the contingent consideration was estimated using discounted cash flow models. This fair value measurement was based on significant inputs not observable in the market and therefore represented a Level 3 measurement. There was no change in the estimated fair value of the contingent consideration in the period from the acquisition date to July 31, 2023.
The impact of the acquisition’s purchase price allocations on the Company’s consolidated balance sheet was as follows:
Schedule of Impact of Acquisition's Purchase Price Allocations on Consolidated Balance Sheet
| (in thousands) | ||||
| Trade accounts receivable | $ | 332 | ||
| Prepaid expenses | 4 | |||
| Other current assets | 21 | |||
| Current assets | ||||
| Property, plant, and equipment (mainly acquired technology) | 777 | |||
| Goodwill | 8,433 | |||
| Customer relationships (7-year useful lives) | 2,230 | |||
| Tradename (5-year useful life) | 400 | |||
| Non-compete agreements (6-year useful lives) | 660 | |||
| Operating lease right-of-use asset | 732 | |||
| Other assets | 24 | |||
| Deferred income tax assets | ||||
| Trade accounts payable | ||||
| Other current liabilities | ||||
| Accrued expenses | (243 | ) | ||
| Operating lease liability current portion | (176 | ) | ||
| Operating lease liability noncurrent portion | (556 | ) | ||
| Noncontrolling interests | ||||
| Net assets acquired excluding cash | $ | 12,638 | ||
The goodwill was assigned to the net2phone segment and was attributable primarily to the assembled workforce and the expected synergies from the business combination. The goodwill is not expected to be deductible for income tax purposes.
Leaf Global Fintech Corporation
On March 1, 2022, the Company’s subsidiary, IDT International Telecom, Inc. (“IDTIT”), purchased all of the outstanding shares of Leaf for up to $6.05 million. Leaf’s operating results from the date of acquisition, which were not significant, are included in the Company’s consolidated financial statements.
The purchase price was comprised of (a) $0.5 million paid in cash at the closing, (b) a working capital adjustment for a maximum of $50,000, and (c) contingent consideration of up to $5.5 million based on annual gross profit over a five-year period.
The acquisition date fair value of the consideration consisted of the following:
Schedule of Acquisition Date Fair Value of Consideration
| (in thousands) | ||||
| Cash paid | $ | 500 | ||
| Cash acquired | (167 | ) | ||
| Cash paid, net of cash acquired | 333 | |||
| Contingent consideration | 3,330 | |||
| Total fair value of consideration, net of cash acquired | $ | 3,663 | ||
| F-22 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The acquisition-date fair value of the contingent consideration was estimated using discounted cash flow models. This fair value measurement was based on significant inputs not observable in the market and therefore represented a Level 3 measurement. There was no change in the estimated fair value of the contingent consideration in the period from the acquisition date to July 31, 2022. In fiscal 2023, the Company determined that the requirements for a portion of the contingent consideration payments would not be met. The Company recorded a gain of $1.6 million on the write-off of the contingent consideration payment obligation, which was included in “Other operating (expense) gain, net” in the accompanying consolidated statements of income.
The impact of the acquisition’s purchase price allocations on the Company’s consolidated balance sheet was as follows:
Schedule of Impact of Acquisition's Purchase Price Allocations on Consolidated Balance Sheet
| (in thousands) | ||||
| Current assets | $ | 9 | ||
| Property, plant, and equipment (mainly acquired technology) | 324 | |||
| Goodwill | 3,199 | |||
| Tradename (5-year useful life) | 131 | |||
| Net assets acquired excluding cash | $ | 3,663 | ||
The goodwill was assigned to the Fintech segment and was attributable primarily to the assembled workforce and the expected synergies from the business combination. The goodwill is not expected to be deductible for income tax purposes.
Sochitel UK Ltd.
On December 3, 2020, IDTIT acquired 51% of the issued shares of Sochitel UK Ltd. (“Sochitel”). Sochitel’s operating results from the date of acquisition, which were not significant, are included in the Company’s consolidated financial statements.
The acquisition date fair value of the consideration consisted of the following:
Schedule of Acquisition Date Fair Value of Consideration
| (in thousands) | Dec 3, 2020 | |||||||
| Cash paid | $ | 2,732 | $ | 2,732 | ||||
| Cash acquired | (344 | ) | (344 | ) | ||||
| Cash paid, net of cash acquired | 2,388 | 2,388 | ||||||
| Contingent consideration | 393 | 393 | ||||||
| Total fair value of consideration, net of cash acquired | $ | 2,781 | $ | 2,781 | ||||
The contingent consideration of $0.5 million will be paid (a) no later than November 30, 2021 if the acquired company generates EBITDA (as defined in the purchase agreement) of no less than $1.0 million between October 1, 2020 and September 30, 2021; or (b) no later than November 30, 2022 if the acquired company generates EBITDA of no less than $1.0 million between October 1, 2021 and September 30, 2022.The acquisition date fair value of the contingent consideration was estimated using discounted cash flow models. This fair value measurement was based on significant inputs not observable in the market and therefore representsrepresented a Level 3 measurement. There was no change in the estimated fair value of the contingent consideration in the period from the acquisition date to July 31, 2021.2022. In fiscal 2023, the Company paid contingent consideration of $0.5 million and recorded an expense of $0.1 million, which was included in “Other operating (expense) gain, net” in the accompanying consolidated statements of income. There is no remaining contingent consideration for this acquisition.
The impact of the acquisition’s purchase price allocations on the Company’s consolidated balance sheet was as follows:
Schedule of Impact of Acquisition's Purchase Price Allocations on Consolidated Balance Sheet
| (in thousands) | Dec 3, 2020 | |||||||
| Trade accounts receivable | $ | 656 | $ | 656 | ||||
| Prepaid expenses | 1,644 | 1,644 | ||||||
| Property, plant, and equipment | 75 | 75 | ||||||
| Goodwill | 2,025 | 2,025 | ||||||
| Customer relationships (15-year useful life) | 1,960 | 1,960 | ||||||
| Tradenames (20-year useful life) | 440 | 440 | ||||||
| Deferred income tax assets | 197 | 197 | ||||||
| Other assets | 30 | 30 | ||||||
| Trade accounts payable | (1,306 | ) | (1,306 | ) | ||||
| Accrued expenses | (423 | ) | (423 | ) | ||||
| Other current liabilities | (329 | ) | (329 | ) | ||||
| Non-compete agreement | ||||||||
| Other liabilities | ||||||||
| Noncontrolling interests | (2,188 | ) | (2,188 | ) | ||||
| Net assets acquired excluding cash | $ | 2,781 | $ | 2,781 | ||||
| F-23 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The goodwill was assigned to the Traditional Communications segment and was attributable primarily to the assembled workforces and the expected synergies from the business combination. The goodwill is not expected to be deductible for income tax purposes.
Pursuant to a Put/Call Option Agreement related to the 5% of the issued shares of the acquired companySochitel that the seller did not initially sell to IDTIT (“Option Shares”), the seller exercised its option and on March 22, 2021, IDTIT purchased the Option Shares for $0.3 million. The purchase of the Option Shares resulted in a $ million reduction in “Noncontrolling interests” and a $ reduction in “Additional paid-in capital” in the consolidated balance sheets.
On June 15, 2021, IDTIT purchased 19% of theSochitel’s issued shares of the acquired company from the remaining noncontrolling interest holder. The purchase price was cash of $1.0 million plus contingent consideration of up to $0.3 million if the acquired company meets certain Adjusted EBITDA targets (as defined in the purchase agreement) no later than April 1, 2023.million. The acquisition date fair value of the contingent consideration of $0.2 million was estimated using cash flow models. This fair value measurement was based on significant inputs not observable in the market and therefore representsrepresented a Level 3 measurement. The purchase of the shares resulted in a $1.0 million reduction in “Noncontrolling interests,” a $0.3 million reduction in “Additional paid-in capital,” and $0.2 million liability in the consolidated balance sheets. There was no change in the estimated fair value of the contingent consideration in the period from the acquisition date to July 31, 2021.2022. In fiscal 2023, the Company paid contingent consideration of $0.3 million and recorded an expense of $0.1 million, which was included in “Other operating (expense) gain, net” in the accompanying consolidated statements of income. There is no remaining contingent consideration for this acquisition.
The Company’s pro forma results of operations as if the acquisition occurred on August 1, 2019 were not materially different from the actual results of operations.
Ringsouth Europa, S.L.
On December 11, 2019, the Company’s subsidiary, net2phone, Inc. acquired 100% of the outstanding shares of Ringsouth Europa, S.L. (“Ringsouth”), a regional provider of cloud communications services to businesses in Spain. The acquisition expanded net2phone’s business into Spain. Ringsouth’s operating results from the date of acquisition, which were not significant, are included in the Company’s consolidated financial statements.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The acquisition date fair value of the consideration consisted of the following:
Schedule of Acquisition Date Fair Value of Consideration
| (in thousands) | Dec 11, 2019 | |||
| Cash paid | $ | 450 | ||
| Contingent consideration | 375 | |||
| Total fair value of consideration | $ | 825 | ||
The contingent consideration includes two potential payments to the seller of $0.4 million each, based on monthly recurring revenue targets to be achieved over a 36-month period and 48-month period. The second potential payment is not contingent upon meeting the target for the first payment. The fair value of the contingent consideration was estimated using discounted cash flow models and Monte Carlo simulations. This fair value measurement was based on significant inputs not observable in the market and therefore represents a Level 3 measurement. There was no change in the estimated fair value of the contingent consideration in the period from the acquisition date to July 31, 2021, although the balance changed due to foreign currency translation adjustments.
The impact of the acquisition’s purchase price allocations on the Company’s consolidated balance sheet was as follows:
Schedule of Impact of Acquisition's Purchase Price Allocations on Consolidated Balance Sheet
| (in thousands) | Dec 11, 2019 | |||
| Trade accounts receivable | $ | 142 | ||
| Other current assets | 21 | |||
| Property, plant, and equipment | 84 | |||
| Goodwill | 1,437 | |||
| Non-compete agreement (4-year useful life) | 50 | |||
| Customer relationships (7-year useful life) | 130 | |||
| Tradename (2-year useful life) | 30 | |||
| Deferred income tax assets | 118 | |||
| Other assets | 10 | |||
| Trade accounts payable | (302 | ) | ||
| Accrued expenses | (136 | ) | ||
| Other current liabilities | (408 | ) | ||
| Other liabilities | (351 | ) | ||
| Net assets acquired | $ | 825 | ||
The goodwill was assigned to the net2phone-UCaaS segment and was attributable primarily to Ringsouth’s assembled workforce and expected synergies from the business combination. The goodwill is expected to be deductible for income tax purposes.
The Company’s pro forma results of operations as if the Ringsouth acquisition occurred on August 1, 2019 were not materially different from the actual results of operations.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 7—Debt Securities
The following is a summary of available-for-sale debt securities:
Schedule of Available-for-sale Securities
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||
| July 31, 2021 | ||||||||||||||||||||||||||||||||
| Certificates of deposit* | $ | 1,200 | $ | 3 | $ | — | $ | 1,203 | ||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||
| July 31, 2022 | ||||||||||||||||||||||||||||||||
| Certificates of deposit* | $ | 2,000 | $ | — | $ | (14 | ) | $ | 1,986 | |||||||||||||||||||||||
| U.S. Treasury bills and notes | 1,669 | — | (17 | ) | 1,652 | 13,848 | — | (114 | ) | 13,734 | ||||||||||||||||||||||
| Corporate bonds | 6,327 | 38 | (33 | ) | 6,332 | 3,966 | 1 | (416 | ) | 3,551 | ||||||||||||||||||||||
| Municipal bonds | 4,825 | — | — | 4,825 | 3,035 | — | (3 | ) | 3,032 | |||||||||||||||||||||||
| TOTAL | $ | 14,021 | $ | 41 | $ | (50 | ) | $ | 14,012 | $ | 22,849 | $ | 1 | $ | (547 | ) | $ | 22,303 | ||||||||||||||
| July 31, 2020 | ||||||||||||||||||||||||||||||||
| Certificates of deposit* | $ | 13,844 | $ | 58 | $ | — | $ | 13,902 | ||||||||||||||||||||||||
| U.S. Treasury bills | 2,498 | — | — | 2,498 | ||||||||||||||||||||||||||||
| Municipal bonds | 1,979 | — | (16 | ) | 1,963 | |||||||||||||||||||||||||||
| TOTAL | $ | 18,321 | $ | 58 | $ | (16 | ) | $ | 18,363 | |||||||||||||||||||||||
| * | Each of the |
Proceeds from maturities and sales of debt securities and redemptions of equity investments were $26.2 49.2 million, $21.2million, and $6.5 26.2million in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively. There were no realized gains or realized losses from sales of debt securities in fiscal 20212023, fiscal 2022, and fiscal 2020.2021.
| F-24 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The contractual maturities of the Company’s available-for-sale debt securities at July 31, 20212023 were as follows:
Schedule of Contractual Maturities of Available-for-sale Debt Securities
| (in thousands) | Fair Value | Fair Value | ||||||
| Within one year | $ | 2,489 | $ | 35,176 | ||||
| After one year through five years | 7,463 | 6,019 | ||||||
| After five years through ten years | 3,771 | 1,172 | ||||||
| After ten years | 289 | 47 | ||||||
| TOTAL | $ | 14,012 | $ | 42,414 | ||||
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
| (in thousands) | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | ||||||||||||
| July 31, 2021 | ||||||||||||||||
| 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 | ||||||||||||
| July 31, 2022 | ||||||||||||||||
| Certificates of deposit | $ | 14 | $ | 1,986 | ||||||||||||
| U.S. Treasury bills and notes | $ | 17 | $ | 1,652 | 114 | 13,734 | ||||||||||
| Corporate bonds | 33 | 3,293 | 416 | 3,514 | ||||||||||||
| Municipal bonds | 3 | 2,412 | ||||||||||||||
| TOTAL | $ | 50 | $ | 4,945 | $ | 547 | $ | 21,646 | ||||||||
| July 31, 2020 | ||||||||||||||||
| Municipal bonds | $ | 16 | $ | 1,963 | ||||||||||||
At July 31, 2021 and 2020, thereThe following available-for-sale debt securities included in the table above were no securities in a continuous unrealized loss position for 12 months or longer.longer:
Schedule of Continuous Unrealized Loss Position for 12 Months or Longer
| (in thousands) | Unrealized Losses | Fair Value | ||||||
| July 31, 2023 | ||||||||
| U.S. Treasury bills and notes | $ | 86 | $ | 816 | ||||
| Corporate bonds | 484 | 3,299 | ||||||
| TOTAL | $ | 570 | $ | 4,115 | ||||
| July 31, 2022 | ||||||||
| U.S. Treasury bills and notes | $ | 72 | $ | 892 | ||||
| Corporate bonds | 234 | 1,731 | ||||||
| TOTAL | $ | 306 | $ | 2,623 | ||||
At July 31, 2023 and 2022, the Company did not intend to sell any of the debt securities included in the table above, and it is not more likely than not that the Company will be required to sell any of these securities before recovery of the unrealized losses, which may be at maturity.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 8—Equity Investments
Equity investments consist of the following:
Schedule of Equity Investments
| July 31 (dollars in thousands) | 2021 | 2020 | ||||||||||||||
| Zedge, Inc. Class B common stock, shares at July 31, 2021 and 2020 | $ | 649 | $ | 59 | ||||||||||||
| Rafael Holdings, Inc. Class B common stock, and shares at July 31, 2021 and 2020, respectively | 12,479 | 389 | ||||||||||||||
| Rafael Holdings, Inc. restricted Class B common stock, and shares at July 31, 2021 and 2020, respectively | 2,209 | — | ||||||||||||||
| July 31 (in thousands) | 2023 | 2022 | ||||||||||||||
| Zedge, Inc. Class B common stock, shares at July 31, 2023 and 2022 | $ | 89 | $ | 117 | ||||||||||||
| Rafael Holdings, Inc. Class B common stock, and shares at July 31, 2023 and 2022, respectively | 558 | 586 | ||||||||||||||
| Other marketable equity securities | 3,630 | — | 1,497 | 4,089 | ||||||||||||
| Fixed income mutual funds | 23,467 | 5,516 | 4,054 | 12,299 | ||||||||||||
| Current equity investments | $ | 42,434 | $ | 5,964 | $ | 6,198 | $ | 17,091 | ||||||||
| Visa Inc. Series C Convertible Participating Preferred Stock (“Visa Series C Preferred”) | $ | 2,465 | $ | 3,825 | $ | 1,263 | $ | 1,132 | ||||||||
| Series B convertible preferred stock—equity method investment | 2,901 | — | ||||||||||||||
| Visa Inc. Series A Convertible Participating Preferred Stock (“Visa Series A Preferred”) | — | 1,230 | ||||||||||||||
| Convertible preferred stock—equity method investment | 2,784 | 1,001 | ||||||||||||||
| Hedge funds | 3,563 | 4,783 | 3,002 | 3,238 | ||||||||||||
| Other | 2,725 | 225 | 2,825 | 825 | ||||||||||||
| Noncurrent equity investments | $ | 11,654 | $ | 8,833 | $ | 9,874 | $ | 7,426 | ||||||||
The Company received the shares of Zedge Inc. (“Zedge”) Class B common sharesstock and of the unrestrictedshares of Rafael Class B common sharesstock set forth in the table above in connection with the lapsing of restrictions on Zedge and Rafael restricted stock held by certain of the Company’s employees and the Company’s payment of taxes on behalf of its employees related thereto. The Company purchased shares of Rafael Class B common stock in fiscal 2021 (see below). The Company sold shares of Rafael Class B common stock in November 2022. Howard S. Jonas is the Vice-Chairman of the Board of Directors of Zedge.
On December 7, 2020, the Company purchased from Rafael newly issued shares of Rafael’s Class B common stock and a warrant to purchase up to 43,649 shares of Rafael’s Class B common stock at an exercise price of $22.91 at any time on or after December 7, 2020 and on or prior to June 6, 2022. The aggregate purchase price of $5.0 million was allocated $4.6 million to the shares and $0.4 million to the warrant based on their relative purchase date fair values. The fair value of the warrant on the acquisition date was estimated using a Black-Scholes valuation model that represented a Level 3 measurement. The purchase price was based on a per share price of $, which was the closing price of Rafael’s Class B common stock on the New York Stock Exchange on the trading day immediately preceding the purchase date. On March 15, 2021, the Company exercised the warrant in full and purchased 43,649 shares of Rafael’s Class B common stock for cash of $1.0 million. The aggregate shares of Rafael’s Class B common stock were not available for sale, assignment, or transfer. These restrictions lapsed in June 2021 for shares and September 2021 for shares.
In June 2016, upon the acquisition of Visa Europe Limited by Visa, Inc. (“Visa”), IDT Financial Services Limited received shares of Visa Series C Preferred among other consideration. At July 31, 2020, each share of Visa Series C Preferred was convertible into shares of Visa Class A common stock (the “Conversion Adjustment), subject to certain conditions, and will be convertible at the holder’s option beginning in June 2028. On September 24, 2020, in connection with Visa’s first mandatory release assessment, the Company received shares of Visa Inc. Series A Convertible Participating Preferred Stock (“Visa Series A Preferred”) and the Conversion Adjustment for Visa Series C Preferred was reduced to . In June 2021, the shares of Visa Series A Preferred were converted into shares of Visa Class A common stock, which the Company sold for $2.9 million. On July 28, 2022, in connection with Visa’s second mandatory release assessment, the Company received
shares of Visa Series A Preferred and the Conversion Adjustment for Visa Series C Preferred was reduced to
. In August 2022, the
shares of Visa Series A Preferred were converted into
shares of Visa Class A common stock, which the Company sold for $1.3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) million.
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
| Year ended July 31 (in thousands) | 2023 | 2022 | 2021 | |||||||||
| Balance, beginning of period | $ | 1,501 | $ | 2,743 | $ | 4,109 | ||||||
| Redemption for Visa mandatory release assessment | — | (1,230 | ) | (1,870 | ) | |||||||
| Purchase | — | 100 | — | |||||||||
| Adjustment for observable transactions involving a similar investment from the same issuer | 131 | (103 | ) | 510 | ||||||||
| Redemptions | — | (9 | ) | (6 | ) | |||||||
| Impairments | — | — | — | |||||||||
| BALANCE, END OF PERIOD | $ | 1,632 | $ | 1,501 | $ | 2,743 | ||||||
| Year ended July 31 (in thousands) | 2021 | 2020 | ||||||
| Balance, beginning of period | $ | 4,109 | $ | 3,919 | ||||
| Redemption for Visa mandatory release assessment | (1,870 | ) | — | |||||
| Adjustment for observable transactions involving a similar investment from the same issuer | 510 | 206 | ||||||
| Upward adjustments | — | 3 | ||||||
| Redemptions | (6 | ) | (19 | ) | ||||
| Impairments | — | — | ||||||
| BALANCE, END OF PERIOD | $ | 2,743 | $ | 4,109 | ||||
| F-26 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company increased or decreased the carrying value of the shares of Visa Series C Preferred it held by $0.5 million and $0.2 million in fiscal 2021 and fiscal 2020, respectively, based on the fair value of Visa Class A common stock, andincluding a discount for lack of current marketability.marketability, which is classified as “Adjustment for observable transactions involving a similar investment from the same issuer” in the table above.
Unrealized gainslosses and lossesgains for all equity investments measured at fair value included the following:
Schedule of Unrealized (losses) Gains for All Equity Investments
| Year ended July 31 (in thousands) | 2021 | 2020 | ||||||
| Net gains (losses) recognized during the period on equity investments | $ | 8,830 | $ | (336 | ) | |||
| Less: net gains recognized during the period on equity investments redeemed during the period | 1,090 | — | ||||||
| Unrealized gains (losses) recognized during the period on equity investments still held at the reporting date | $ | 7,740 | $ | (336 | ) | |||
| Year ended July 31 (in thousands) | 2023 | 2022 | 2021 | |||||||||
| Net (losses) gains recognized during the period on equity investments | $ | (2,613 | ) | $ | (19,248 | ) | $ | 8,830 | ||||
| Less: net gains recognized during the period on equity investments sold during the period | 18 | 10 | 1,090 | |||||||||
| Unrealized (losses) gains recognized during the period on equity investments still held at the reporting date | $ | (2,631 | ) | $ | (19,258 | ) | $ | 7,740 | ||||
The unrealized losses and gains for all equity investments measured at fair value in the table above included the following:
| Year ended July 31 (in thousands) | 2023 | 2022 | 2021 | |||||||||
| Unrealized (losses) gains recognized during the period on equity investments: | ||||||||||||
| Rafael Class B common stock | $ | (7 | ) | $ | (14,101 | ) | $ | 8,291 | ||||
| Zedge Class B common stock | $ | (28 | ) | $ | (533 | ) | $ | 591 | ||||
| Unrealized (losses) gains recognized during the period on equity investments still held at the reporting date | $ | (2,631 | ) | $ | (19,258 | ) | $ | 7,740 | ||||
Equity Method Investment
On February 2, 2021, the Company paid $4.0 million to purchase shares of seriesSeries B convertible preferred stock of a communications company (the equity method investee, or “EMI”)., and on August 10, 2021, the Company paid $1.1 million to purchase shares of the EMI’s Series C convertible preferred stock and additional shares of the EMI’s Series B convertible preferred stock. The initial shares purchased representrepresented 23.95% of the outstanding shares of the EMI on an as converted basis. The subsequent purchases increased the Company’s ownership to 26.57% on an as converted basis.
The Company accountsaccounted for this investment using the equity method since the seriesSeries B and Series C convertible preferred stock iswere in-substance common stock, and the Company cancould exercise significant influence over the operating and financial policies of the EMI.
The following table summarizesAs of July 31, 2022, the changeCompany was the holder of secured promissory notes made by the EMI in exchange for loans of an aggregate of $2.5 million, which increased to an aggregate of $4.0 million including accrued interest as of April 6, 2023. At July 31, 2022, the notes were included in “Other current assets” in the accompanying consolidated balance sheets. The notes provided for interest on the principal amount at 15% per annum payable monthly. The notes were due and payable in February 2023 and April 2023.
On April 6, 2023, in accordance with an Agreement and Plan of Merger dated as of April 5, 2023, the EMI merged with and into its subsidiary, with the subsidiary being the surviving corporation. Effective with the merger, the EMI has no common stock outstanding, each share of the EMI’s convertible preferred stock was converted into shares of the subsidiary’s Series A Convertible Preferred Stock (“EMI Preferred Stock”), and the principal and accrued interest of the EMI’s secured promissory notes was converted into shares of EMI Preferred Stock (the “Conversions”). In addition, each of the EMI’s shareholders agreed to purchase additional shares of EMI Preferred Stock, for which the Company paid $0.8 million in fiscal 2023 to purchase the additional shares. Following the merger, the Conversions, and the purchases of additional shares of EMI Preferred Stock, the Company’s ownership increased to 33.3% of the EMI’s outstanding shares.
The Company accounts for this investment using the equity method investment:since the Company can exercise significant influence over the operating and financial policies of the EMI but it does not have a controlling interest.
Summary of Changes in Equity Method Investments
| F-27 |
| Year ended July 31 (in thousands) | 2021 | 2020 | ||||||
| Balance, beginning of period | $ | — | $ | — | ||||
| Purchase of series B convertible preferred stock | 4,000 | — | ||||||
| Equity in the net loss of investee | (816 | ) | — | |||||
| Amortization of equity method basis difference | (283 | ) | — | |||||
| BALANCE, END OF PERIOD | $ | 2,901 | $ | — | ||||
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company determined that on the datedates of the acquisition,acquisitions, there was a difference of $3.4 millionwere 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 Company’s share of the EMI’s customer list on the datedates of acquisition.the acquisitions attributed to the Company’s interest in the EMI. ThisThese basis difference isdifferences 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) income, (expense), net” (see Note 17)18).
The following table summarizes the change in the balance of the Company’s equity method investment:
IDT CORPORATION Summary of Changes in Equity Method Investments
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Year ended July 31 (in thousands) | 2023 | 2022 | 2021 | |||||||||
| Balance, beginning of period | $ | 1,001 | $ | 2,901 | $ | — | ||||||
| Purchase of convertible preferred stock | 840 | 1,051 | 4,000 | |||||||||
| Conversion of secured promissory notes into convertible preferred stock | 4,038 | — | — | |||||||||
| Equity in the net loss of investee | (2,153 | ) | (2,224 | ) | (816 | ) | ||||||
| Amortization of equity method basis difference | (942 | ) | (727 | ) | (283 | ) | ||||||
| BALANCE, END OF PERIOD | $ | 2,784 | $ | 1,001 | $ | 2,901 | ||||||
Summarized financial information of the EMI was as follows:
Summary of Statements of Operations
| July 31, 2021 (in thousands) | ||||||||||||
| July 31 (in thousands) | 2023 | 2022 | ||||||||||
| Current assets | $ | 1,467 | $ | 3,661 | $ | 3,911 | ||||||
| Noncurrent assets | $ | 2,549 | $ | 2,245 | $ | 2,462 | ||||||
| Current liabilities | $ | (4,041 | ) | $ | (2,771 | ) | $ | (11,480 | ) | |||
| Noncurrent liabilities | $ | (50 | ) | $ | — | $ | — | |||||
| From the date of acquisition to July 31, 2021 (in thousands) | ||||||||||||||||
| (in thousands) | Year ended July 31, 2023 | Year ended July 31, 2022 | From the date of acquisition to July 31, 2021 | |||||||||||||
| REVENUES | $ | 1,898 | $ | 7,998 | $ | 7,889 | $ | 1,898 | ||||||||
| COSTS AND EXPENSES: | ||||||||||||||||
| Direct cost of revenues | 1,937 | 6,680 | 9,451 | 1,937 | ||||||||||||
| Selling, general and administrative | 3,388 | 7,871 | 5,834 | 3,388 | ||||||||||||
| TOTAL COSTS AND EXPENSES | 5,325 | 14,551 | 15,285 | 5,325 | ||||||||||||
| LOSS FROM OPERATIONS | (3,427 | ) | (6,553 | ) | (7,396 | ) | (3,427 | ) | ||||||||
| Other income, net | 101 | |||||||||||||||
| Other (expense) income, net | (1,305 | ) | (342 | ) | 101 | |||||||||||
| NET LOSS | $ | (3,326 | ) | $ | (7,858 | ) | $ | (7,738 | ) | $ | (3,326 | ) | ||||
On August 10, 2021,As of July 27, 2023, the EMI’s shareholders including the Company agreed to purchase additional shares of EMI Preferred Stock. The Company subscribed to purchase additional shares for an aggregate of $1.0 million. In the first quarter of fiscal 2024 through October 11, 2023, the Company paid $1.10.7 million to purchase shares of the EMI’s series C convertible preferred stock and additional shares of the EMI’s series B convertible preferred stock. These purchases increased the Company’s ownership of the outstanding shares of the EMI to 26.57shares.% on an as converted basis.
Note 9—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 Onon a Recurring Basis
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
| July 31, 2021 | ||||||||||||||||||||||||||||||||
| July 31, 2023 | ||||||||||||||||||||||||||||||||
| Debt securities | $ | 1,652 | $ | 12,360 | $ | — | $ | 14,012 | $ | 31,038 | $ | 11,376 | $ | — | $ | 42,414 | ||||||||||||||||
| Equity investments included in current assets | 40,225 | 2,209 | — | 42,434 | 6,198 | — | — | 6,198 | ||||||||||||||||||||||||
| Equity investments included in noncurrent assets | — | — | 2,465 | 2,465 | — | 2,500 | 1,263 | 3,763 | ||||||||||||||||||||||||
| TOTAL | $ | 41,877 | $ | 14,569 | $ | 2,465 | $ | 58,911 | $ | 37,236 | $ | 13,876 | $ | 1,263 | $ | 52,375 | ||||||||||||||||
| Contingent consideration included in: | ||||||||||||||||||||||||||||||||
| Other current liabilities (see Note 6) | $ | — | $ | — | $ | (628 | ) | $ | (628 | ) | ||||||||||||||||||||||
| Other noncurrent liabilities (see Note 6) | — | — | (397 | ) | (397 | ) | ||||||||||||||||||||||||||
| Acquisition consideration included in: | ||||||||||||||||||||||||||||||||
| Other current liabilities | $ | — | $ | — | $ | (2,032 | ) | $ | (2,032 | ) | ||||||||||||||||||||||
| Other noncurrent liabilities | — | — | (2,773 | ) | (2,773 | ) | ||||||||||||||||||||||||||
| TOTAL | $ | — | $ | — | $ | (1,025 | ) | $ | (1,025 | ) | $ | — | $ | — | $ | (4,805 | ) | $ | (4,805 | ) | ||||||||||||
| July 31, 2020 | ||||||||||||||||||||||||||||||||
| July 31, 2022 | ||||||||||||||||||||||||||||||||
| Debt securities | $ | 2,498 | $ | 15,865 | $ | — | $ | 18,363 | $ | 13,734 | $ | 8,569 | $ | — | $ | 22,303 | ||||||||||||||||
| Equity investments included in current assets | 5,964 | — | — | 5,964 | 17,091 | — | — | 17,091 | ||||||||||||||||||||||||
| Equity investments included in noncurrent assets | — | — | 3,825 | 3,825 | — | 1,730 | 1,132 | 2,862 | ||||||||||||||||||||||||
| TOTAL | $ | 8,462 | $ | 15,865 | $ | 3,825 | $ | 28,152 | $ | 30,825 | $ | 10,299 | $ | 1,132 | $ | 42,256 | ||||||||||||||||
| Contingent consideration included in other noncurrent liabilities (see Note 6) | $ | — | $ | — | $ | (396 | ) | $ | (396 | ) | ||||||||||||||||||||||
| Acquisition consideration included in: | ||||||||||||||||||||||||||||||||
| Other current liabilities | $ | — | $ | — | $ | (2,578 | ) | $ | (2,578 | ) | ||||||||||||||||||||||
| Other noncurrent liabilities | — | — | (5,968 | ) | (5,968 | ) | ||||||||||||||||||||||||||
| TOTAL | $ | — | $ | — | $ | (8,546 | ) | $ | (8,546 | ) | ||||||||||||||||||||||
| F-28 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
At July 31, 20212023 and 2020,2022, the Company had $3.63.0 million and $4.8 3.2million, 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.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following tables summarize 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 Onon a Recurring Basis Using Significant Unobservable Inputs (level(Level 3)
| Year ended July 31, (in thousands) | 2021 | 2020 | 2023 | 2022 | 2021 | |||||||||||||||
| Balance, beginning of period | $ | 3,825 | $ | 3,619 | $ | 1,132 | $ | 2,465 | $ | 3,825 | ||||||||||
| Purchase of Rafael Holdings, Inc. warrant | 354 | — | — | — | 354 | |||||||||||||||
| Exercise of Rafael Holdings, Inc. warrant | (380 | ) | — | — | — | (380 | ) | |||||||||||||
| Redemption for Visa mandatory release assessment | (1,870 | ) | — | — | (1,230 | ) | (1,870 | ) | ||||||||||||
| Total gains included in “Other income (expense), net” | 536 | 206 | ||||||||||||||||||
| Total gains (losses) included in “Other (expense) income, net” | 131 | (103 | ) | 536 | ||||||||||||||||
| BALANCE, END OF PERIOD | $ | 2,465 | $ | 3,825 | $ | 1,263 | $ | 1,132 | $ | 2,465 | ||||||||||
| Change in unrealized gains or losses for the period included in earnings for assets held at the end of the period | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
The following tables summarize 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 Onon a Recurring Basis Using Significant Unobservable Inputs (level(Level 3)
| Year ended July 31, (in thousands) | 2021 | 2020 | 2023 | 2022 | 2021 | |||||||||||||||
| Balance, beginning of period | $ | 396 | $ | — | $ | 8,546 | $ | 1,025 | $ | 396 | ||||||||||
| Transfer into Level 3 from acquisitions (see Note 6) | 628 | 375 | ||||||||||||||||||
| Total losses included in “Foreign currency translation adjustments” | 1 | 21 | ||||||||||||||||||
| Transfer into Level 3 from acquisitions | — | 7,849 | 628 | |||||||||||||||||
| Payments | (2,494 | ) | — | — | ||||||||||||||||
| Total (gain) loss included in: | ||||||||||||||||||||
| “Other operating (expense) gain, net” | (1,349 | ) | (303 | ) | — | |||||||||||||||
| Interest expense included in “Interest income, net” | 97 | — | — | |||||||||||||||||
| “Foreign currency translation adjustments” | 5 | (25 | ) | 1 | ||||||||||||||||
| BALANCE, END OF PERIOD | $ | 1,025 | $ | 396 | $ | 4,805 | $ | 8,546 | $ | 1,025 | ||||||||||
| Change in unrealized gains or losses for the period included in earnings for liabilities at the end of the period | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
In fiscal 2023, the Company paid an aggregate of $2.5 million in contingent consideration related to prior acquisitions, which included shares of the Company’s Class B common stock with a value of $0.1 million. In addition, the Company recorded gains of $1.6 million and $0.3 million in fiscal 2023 and fiscal 2022, respectively, on the write-off of contingent consideration payment obligations, which were included in “Other operating (expense) gain, net” in the accompanying consolidated statements of income. Also, in fiscal 2023, the Company increased the estimated fair value of acquisition-related contingent consideration by $0.2 million, which was included in “Other operating (expense) gain, net” in the accompanying consolidated statements of income. There were no other changes in the estimated fair value of contingent consideration in fiscal 2023, fiscal 2022, and fiscal 2021.
| F-29 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 July 31, 20212023 and 2020,2022, the carrying amount of these assets and liabilities approximated fair value because of the short period of time to maturity. The fair value estimates for cash, cash equivalents, and restricted cash and cash equivalents were classified as Level 1 and 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 July 31, 20212023 and 2020,2022, the carrying amount of these assets and liabilities approximated fair value. The fair values were estimated based on the Company’s assumptions, which were classified as Level 3 of the fair value hierarchy.
Note 10—Property, Plant, and Equipment
Property, plant, and equipment consist of the following:
Schedule of Property, Plant and Equipment
| July 31 (in thousands) | 2021 | 2020 | ||||||
| Equipment | $ | 50,039 | $ | 67,530 | ||||
| Computer software | 141,978 | 130,565 | ||||||
| Leasehold improvements | 1,727 | 1,723 | ||||||
| Furniture and fixtures | 588 | 450 | ||||||
| Property, plant and equipment, gross | 194,332 | 200,268 | ||||||
| Less accumulated depreciation and amortization | (163,503 | ) | (170,207 | ) | ||||
| Property, plant, and equipment, net | $ | 30,829 | $ | 30,061 | ||||
| July 31 (in thousands) | 2023 | 2022 | ||||||
| Equipment | $ | 43,704 | $ | 40,811 | ||||
| Computer software | 169,070 | 156,258 | ||||||
| Leasehold improvements | 1,760 | 1,874 | ||||||
| Furniture and fixtures | 699 | 681 | ||||||
| Property, plant and equipment, gross | 215,233 | 199,624 | ||||||
| Less accumulated depreciation and amortization | (176,578 | ) | (162,758 | ) | ||||
| Property, plant, and equipment, net | $ | 38,655 | $ | 36,866 | ||||
The Company reduced its gross property, plant, and equipment and accumulated depreciation and amortization by $23.94.2 million and $16.917.4 million in fiscal 20212023 and fiscal 2020,2022, respectively, for property, plant, and equipment that was fully depreciated and no longer in service.
Depreciation and amortization expense of property, plant, and equipment was $17.118.6 million, $16.8 million, and $20.0 17.1million in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively.
Telephone
In fiscal 2023, the Company recorded an expense of $0.1 million for telephone equipment leased to customersthat was taken out of service, which was included in “Equipment”“Other operating (expense) gain, net” in the accompanying consolidated statements of income.
Note 11—Goodwill
The table above was as follows:below reconciles the change in the carrying amount of goodwill by operating segment:
Schedule of Property, Plant and EquipmentChange in Carrying Amount of Goodwill by Operating Segment
| (in thousands) | Fintech | net2phone | Traditional Communications | Total | ||||||||||||
| Balance at July 31, 2020 | $ | — | $ | 1,519 | $ | 11,339 | $ | 12,858 | ||||||||
| Acquisition | — | — | 2,025 | 2,025 | ||||||||||||
| Foreign currency translation adjustments | — | 4 | 10 | 14 | ||||||||||||
| Balance at July 31, 2021 | — | 1,523 | 13,374 | 14,897 | ||||||||||||
| Acquisitions | 3,199 | 8,433 | — | 11,632 | ||||||||||||
| Adjustment | — | — | 392 | 392 | ||||||||||||
| Foreign currency translation adjustments | — | (213 | ) | (328 | ) | (541 | ) | |||||||||
| Balance at July 31, 2022 | 3,199 | 9,743 | 13,438 | 26,380 | ||||||||||||
| Balance at beginning | 3,199 | 9,743 | 13,438 | 26,380 | ||||||||||||
| Foreign currency translation adjustments | — | 101 | (24 | ) | 77 | |||||||||||
| Balance at July 31, 2023 | $ | 3,199 | $ | 9,844 | $ | 13,414 | $ | 26,457 | ||||||||
| Balance at end | $ | 3,199 | $ | 9,844 | $ | 13,414 | $ | 26,457 | ||||||||
| July 31 | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Equipment | $ | 7,438 | $ | 4,563 | ||||
| Property, plant and equipment, gross | $ | 7,438 | $ | 4,563 | ||||
| Less accumulated depreciation | (2,071 | ) | (1,021 | ) | ||||
| Net | $ | 5,367 | $ | 3,542 | ||||
Depreciation expense of telephone equipment leased to customers was $1.1 million and $0.6 million in fiscal 2021 and fiscal 2020, respectively.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 11—Goodwill
The table below reconciles the change in the carrying amount of goodwill by operating segment for the period from July 31, 2019 to July 31, 2021:
Schedule of Change in Carrying Amount of Goodwill by Operating Segment
| (in thousands) | Traditional Communications | net2phone-UCaaS | Total | |||||||||
| Balance at July 31, 2019 | $ | 11,209 | $ | — | $ | 11,209 | ||||||
| Acquisition | — | 1,437 | 1,437 | |||||||||
| Foreign currency translation adjustments | 130 | 82 | 212 | |||||||||
| Balance at July 31, 2020 | 11,339 | 1,519 | 12,858 | |||||||||
| Acquisition | 2,025 | — | 2,025 | |||||||||
| Foreign currency translation adjustments | 10 | 4 | 14 | |||||||||
| Balance at July 31, 2021 | $ | 13,374 | $ | 1,523 | $ | 14,897 | ||||||
Note 12—Other Intangible Assets
The table below presents information on the Company’s amortized intangible assets:
Schedule of Company's Amortized Intangible Assets
| (in thousands) | Weighted Average Amortization Period | Gross Carrying Amount | Accumulated Amortization | Net Balance | Weighted Average Amortization Period | Gross Carrying Amount | Accumulated Amortization | Net Balance | ||||||||||||||||||||||
| July 31, 2021 | ||||||||||||||||||||||||||||||
| July 31, 2023 | ||||||||||||||||||||||||||||||
| Tradenames | 13.0 years | $ | 2,080 | $ | (506 | ) | $ | 1,574 | 10.5 years | $ | 2,694 | $ | (1,005 | ) | $ | 1,689 | ||||||||||||||
| Non-compete agreements | 4.9 years | 680 | (380 | ) | 300 | 5.5 years | 1,302 | (778 | ) | 524 | ||||||||||||||||||||
| Customer relationships | 11.5 years | 9,462 | (3,758 | ) | 5,704 | 7.5 years | 11,511 | (5,528 | ) | 5,983 | ||||||||||||||||||||
| TOTAL | 11.4 years | $ | 12,222 | $ | (4,644 | ) | $ | 7,578 | 7.9 years | $ | 15,507 | $ | (7,311 | ) | $ | 8,196 | ||||||||||||||
| July 31, 2020 | ||||||||||||||||||||||||||||||
| July 31, 2022 | ||||||||||||||||||||||||||||||
| Tradenames | 16.5 years | $ | 1,017 | $ | (392 | ) | $ | 625 | 11.4 years | $ | 2,480 | $ | (700 | ) | $ | 1,780 | ||||||||||||||
| Non-compete agreements | 4.9 years | 636 | (227 | ) | 409 | 5.5 years | 1,316 | (549 | ) | 767 | ||||||||||||||||||||
| Customer relationships | 11.2 years | 6,215 | (3,290 | ) | 2,925 | 7.8 years | 11,590 | (4,528 | ) | 7,062 | ||||||||||||||||||||
| TOTAL | 11.4 years | $ | 7,868 | $ | (3,909 | ) | $ | 3,959 | 8.2 years | $ | 15,386 | $ | (5,777 | ) | $ | 9,609 | ||||||||||||||
Amortization expense of intangible assets was $0.71.5million, $1.3 million, and $0.40.7 million in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively. The Company estimates that amortization expense of intangible assets with finite lives will be $0.91.5 million, $0.91.4 million, $0.71.2 million, $0.61.2 million, and $0.5 1.0million in fiscal 2022, fiscal 2023, fiscal 2024, fiscal 2025, fiscal 2026, fiscal 2027, and fiscal 2026,2028, respectively.
Note 13—Variable Interest Entity
As of May 31, 2021, the Company entered into a Warrant Purchase Agreement with the shareholders of an entity (the variable interest entity or “VIE”) that operates money transfer businesses. The purchase price of the warrant was cash of $0.8million and a contingent payment of $0.1million.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company has various management rights and protective provisions pursuant to the Warrant Purchase Agreement .Agreement. Primarily as a result of the Warrant Purchase Agreement, the Company can obtain 90% of the ownership interests in the VIE. 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. The Company therefore determined that it is the primary beneficiary of the VIE, and 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 statements of income.
| F-31 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The VIE’s net income and aggregate funding provided by (repaid to) the Company to finance the VIE’s operations were as follows:
Schedule of Net Income (loss) and Aggregate Funding Provided byRepaid to the Company toby VIE to Finance Its Operations or Repaid
| For the period from May 31, 2021 to July 31, 2021 (in thousands) | ||||
| Net income of the VIE | $ | 54 | ||
| Aggregate funding provided by the Company, net | $ | (8 | ) | |
| (in thousands) | Year ended July 31, 2023 | Year ended July 31, 2022 | For the period from May 31, 2021 to July 31, 2021 | |||||||||
| Net income of the VIE | $ | 322 | $ | 248 | $ | 54 | ||||||
| Aggregate funding provided by (repaid to) the Company, net | $ | 112 | $ | (94 | ) | $ | 8 | |||||
The VIE’s summarized consolidated balance sheet amounts are as follows:
VIE’s Summarized Consolidated Balance Sheet
| (in thousands) | May 31, 2021 | July 31, 2021 | ||||||||||||||
| July 31 (in thousands) | 2023 | 2022 | ||||||||||||||
| ASSETS | ||||||||||||||||
| Cash and cash equivalents | $ | 1,249 | $ | 1,364 | $ | 1,596 | $ | 1,808 | ||||||||
| Restricted cash | 2,087 | 3,848 | 7,848 | 4,490 | ||||||||||||
| Trade accounts receivable, net | 80 | 91 | 62 | 31 | ||||||||||||
| Disbursement prefunding | 585 | 925 | ||||||||||||||
| Prepaid expenses | 126 | 344 | 197 | 14 | ||||||||||||
| Other current assets | 1,248 | 858 | 317 | 462 | ||||||||||||
| Due from the Company | — | 86 | ||||||||||||||
| Property, plant, and equipment, net | 637 | 637 | 272 | 467 | ||||||||||||
| Other intangibles, net | 1,067 | 1,042 | 737 | 889 | ||||||||||||
| TOTAL ASSETS | $ | 6,494 | $ | 8,184 | $ | 11,614 | $ | 9,172 | ||||||||
| LIABILITIES AND NONCONTROLLING INTERESTS | ||||||||||||||||
| Trade accounts payable | $ | 22 | $ | 312 | $ | — | $ | — | ||||||||
| Accrued expenses | 43 | 26 | 70 | 54 | ||||||||||||
Other current liabilities | 3,136 | 4,491 | ||||||||||||||
| Settlement liabilities | 7,573 | 5,525 | ||||||||||||||
Due to the Company | — | 8 | 26 | — | ||||||||||||
Accumulated other comprehensive loss | (7) | (7 | ) | |||||||||||||
| Accumulated other comprehensive income (loss) | 21 | (9 | ) | |||||||||||||
| Noncontrolling interests | 3,300 | 3,354 | 3,924 | 3,602 | ||||||||||||
| TOTAL LIABILITIES AND NONCONTROLLING INTERESTS | $ | 6,494 | $ | 8,184 | $ | 11,614 | $ | 9,172 | ||||||||
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 14—Other Operating (Expense) Gain, (Expense), Net
The following table summarizes the other operating (expense) gain, (expense), net by business segment:
Schedule of Other Operating (Expense) Gain, (Expense), Net
| Year ended July 31 (in thousands) | 2021 | 2020 | ||||||
| Corporate —Straight Path Communications Inc. class action insurance claims net of legal fees/(legal fees net of insurance claims) | $ | 225 | $ | (531 | ) | |||
| net2phone-UCaaS—other, net | (100 | ) | (63 | ) | ||||
| Fintech—money transfer settlement | 45 | — | ||||||
| Traditional Communications—gain from sale of rights under class action lawsuit | 2,000 | — | ||||||
| Traditional Communications—net2phone indemnification claim | (472 | ) | (1,244 | ) | ||||
| Traditional Communications—accrual for non-income related taxes related to a foreign subsidiary | — | (2,150 | ) | |||||
| Traditional Communications—other | (967 | ) | (1,075 | ) | ||||
| TOTAL | $ | 731 | $ | (5,063 | ) | |||
| Year ended July 31 (in thousands) | 2023 | 2022 | 2021 | |||||||||
| Corporate —Straight Path Communications Inc. class action legal fees | $ | (5,785 | ) | $ | (7,671 | ) | $ | (2,876 | ) | |||
| Corporate —Straight Path Communications Inc. class action insurance claims | 3,845 | 6,635 | 3,101 | |||||||||
| Corporate—Grow New Jersey Assistance Act tax credit | 1,600 | — | — | |||||||||
| Fintech—write-off of contingent consideration liability | 1,565 | — | — | |||||||||
| Fintech—government grants | 382 | 20 | — | |||||||||
| Fintech—other | — | — | (367 | ) | ||||||||
| net2phone—write-off of telephone equipment | (133 | ) | — | — | ||||||||
| net2phone—write-off of contingent consideration liability | — | 303 | — | |||||||||
| Write-off of contingent consideration liability | ||||||||||||
| net2phone—other | — | (10 | ) | (100 | ) | |||||||
| Traditional Communications—write-off of capitalized internal use software costs | (1,419 | ) | — | — | ||||||||
| Traditional Communications—gain from sale of rights under class action lawsuit | — | — | 2,000 | |||||||||
| Traditional Communications—cable telephony customer indemnification claim | (3,925 | ) | (96 | ) | (472 | ) | ||||||
| Traditional Communications— increase in contingent consideration liability | (216 | ) | — | — | ||||||||
| Traditional Communications—other | (329 | ) | (7 | ) | (555 | ) | ||||||
| TOTAL | $ | (4,415 | ) | $ | (826 | ) | $ | 731 | ||||
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Straight Path Communications Inc. Class Action
As discussed in Note 22,23, the Company (as well as other defendants) has been named in a pending putative class action on behalf of the stockholders of the Company’s former subsidiary, Straight Path Communications Inc. (“Straight Path”), and a derivative complaint. In fiscal 2021 and fiscal 2020, the. The Company incurred legal fees of $2.9 million and $3.6 million, respectively, related to this action. Also, in fiscal 2021 and fiscal 2020, the Company recorded offsetting gains from insurance claims related to this action in fiscal 2023, fiscal 2022, and fiscal 2021. 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.
Grow New Jersey Assistance Act Tax Credit
In September 2017, the Company, the Company’s subsidiary IDT Domestic Telecom, Inc. (“IDT DT”), and certain other affiliates were certified by the New Jersey Economic Development Authority (“NJEDA”) as having met the requirements of the Grow New Jersey Assistance Act Tax Credit Program. The program provides for this mattercredits 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, the Company received a 2019 tax credit certificate for $1.8 million from the NJEDA. In August 2023, the Company sold the certificate for cash of $3.1 1.6 million.
million and $
3.1 million, respectively.Contingent Consideration Liabilities
In fiscal 2023, the Company determined that the requirements for a portion of the contingent consideration payments related to the Leaf acquisition would not be met. In addition, in fiscal 2022, the Company determined that the requirements for a contingent consideration payment related to an acquisition in December 2019 would not be met before the expiration date. The Company recognized gains on the write-off of these contingent consideration payment obligations in the Fintech and net2phone segments, respectively. Also, in fiscal 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 fiscal 2023 and fiscal 2022, Leaf received payments from government grants for the development and commercialization of blockchain-backed financial technologies.
Write-off of Capitalized Internal Use Software Costs
In fiscal 2023, the Company reduced its unamortized capitalized internal use software costs for internal use software that was taken out of service and recorded an expense of $1.4 million.
Gain from Sale of Rights under Class Action Lawsuit
On December 21, 2020, the Company received $2.0 million from the sale to a third party of all its rights under the Payment Card Interchange Fee and Merchant Discount Antitrust Litigation. The lawsuit is aboutLitigation related to claims that merchants paid excessive fees to accept Visa and Mastercard cards between January 1, 2004 and January 25, 2019 because Visa and Mastercard, individually, and together with their respective member banks, violated the antitrust laws.2019.
Indemnification Claim
InBeginning in June 2019, as part of a commercial resolution, the Company indemnified a net2phone 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, of which $1.9 million was paid on May 10, 2023 and the remainder will be paid in five monthly invoice deductions of $0.4 million each.
Accrual for Non-Income Related Taxes
In fiscal 2020, the Company recorded an accrual for non-income related taxes related to one of its foreign subsidiaries.
Note 15—Revolving Credit Facility and Note Payable
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 $25.0million. 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 July 31, 2021,2023 and 2022, there were no amounts outstanding under this facility. In fiscal 2023 and fiscal 2022, IDT Telecom had not borrowed any amountsand repaid an aggregate of $27.4 million and $2.6 million, respectively, under thisthe facility. The revolving credit facility is secured by primarily all of IDT Telecom’s assets. The principal outstanding bears interest per annum at the Intercontinental Exchange Benchmark Administration Ltd. LIBOR multipliedsecured overnight financing rate published by the Regulation D maximum reserve requirementFederal Reserve Bank of New York plus 125 to 17510 basis points, plus depending upon IDT Telecom’s leverage ratio as computed for the most recent fiscal quarter.quarter, 125 to 175 basis points. Interest is payable monthly, and all outstanding principal and any accrued and unpaid interest is due in on May 2024.16, 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 July 31, 2021,2023 and 2022, IDT Telecom was in compliance with all of the covenants.
IDT Telecom had a credit agreement dated asIn the first quarter of October 31, 2019, with TD Bank, N.A. for a revolving credit facility for up to a maximum principal amount offiscal 2024, the Company borrowed and repaid $25.0 million until its maturity date on July 15, 2020. The principal outstanding incurred interest per annum atunder the LIBOR rate adjusted by the Regulation D maximum reserve requirement plus 125 basis points. IDT Telecom paid a quarterly unused commitment fee of 0.3% per annum on the average daily balance of the unused portion of the $25.0 million commitment.facility.
Note Payable16—Accrued Expenses
On April 20, 2020, IDT Domestic Telecom, Inc. (“IDT DT”), a subsidiaryAccrued expenses consist of the Company, received loan proceeds of $10.0 million (the “PPP Loan”) from TD Bank, N.A., pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration. On April 29, 2020, IDT DT returned all $10.0 million in proceeds from the PPP Loan.following:
Schedule of Accrued Expenses
| July 31 (in thousands) | 2023 | 2022 | ||||||
| Carrier minutes termination | $ | 20,675 | $ | 28,869 | ||||
| Regulatory fees and taxes | 43,302 | 48,146 | ||||||
| Compensation costs | 18,858 | 16,145 | ||||||
| Maintenance and support | 3,434 | 2,122 | ||||||
| Commissions | 4,164 | 3,204 | ||||||
| Legal and professional fees | 8,751 | 6,601 | ||||||
| Other | 11,612 | 12,022 | ||||||
| TOTAL | $ | 110,796 | $ | 117,109 | ||||
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 17—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 sheet 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
| Year ended July 31 (in thousands) | 2023 | 2022 | 2021 | |||||||||
| Net income of NRS attributable to the mezzanine equity’s noncontrolling interest | $ | 281 | $ | 191 | $ | — | ||||||
Note 18—Other (Expense) Income, Net
Other (expense) income, net consists of the following:
Schedule of Other (Expense) Income, Net
| 2023 | 2022 | 2021 | ||||||||||
| Year ended July 31 (in thousands) | 2023 | 2022 | 2021 | |||||||||
| Foreign currency transaction gains (losses) | $ | 3,353 | $ | (1,742 | ) | $ | 1,009 | |||||
| Equity in net loss of investee | (3,095 | ) | (2,951 | ) | (1,099 | ) | ||||||
| (Losses) gains on investments | (2,613 | ) | (19,248 | ) | 8,830 | |||||||
| Other | (728 | ) | (1,411 | ) | (824 | ) | ||||||
| TOTAL | $ | (3,083 | ) | $ | (25,352 | ) | $ | 7,916 | ||||
Note 19—Income Taxes
The components of income before income taxes are as follows:
Components of Income Before Income Taxes
| Year ended July 31 (in thousands) | 2023 | 2022 | 2021 | |||||||||
| Domestic | $ | 48,036 | $ | 25,025 | $ | 60,969 | ||||||
| Foreign | 12,771 | 9,858 | 4,255 | |||||||||
| INCOME BEFORE INCOME TAXES | $ | 60,807 | $ | 34,883 | $ | 65,224 | ||||||
Significant components of the Company’s deferred income tax assets consist of the following:
Significant Components of Deferred Income Taxes
| July 31 (in thousands) | 2023 | 2022 | ||||||
| Deferred income tax assets: | ||||||||
| Bad debt reserve | $ | 1,117 | $ | 959 | ||||
| Accrued expenses | 4,825 | 3,570 | ||||||
| Stock options and restricted stock | 361 | 42 | ||||||
| Charitable contributions | 724 | 730 | ||||||
| Depreciation | (585 | ) | (640 | ) | ||||
| Unrealized gain | 4,407 | 2,895 | ||||||
| Net operating loss | 23,870 | 40,733 | ||||||
| Total deferred income tax assets | 34,719 | 48,289 | ||||||
| Valuation allowance | (10,618 | ) | (11,588 | ) | ||||
| NET DEFERRED INCOME TAX ASSETS | $ | 24,101 | $ | 36,701 | ||||
| F-34 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 16—Accrued Expenses
Accrued expenses consist of the following:
Schedule of Accrued Expenses
| July 31 (in thousands) | 2021 | 2020 | ||||||
| Carrier minutes termination | $ | 35,738 | $ | 33,766 | ||||
| Regulatory fees and taxes | 52,292 | 54,087 | ||||||
| Compensation costs | 15,465 | 16,051 | ||||||
| Maintenance and support | 3,258 | 2,015 | ||||||
| Commissions (money transfer and Mobile Top-Up) | 3,213 | 1,904 | ||||||
| Legal and professional fees | 6,134 | 5,466 | ||||||
| Other | 12,985 | 12,255 | ||||||
| TOTAL | $ | 129,085 | $ | 125,544 | ||||
Note 17—Other Income (Expense), Net
Other income (expense), net consists of the following:
Schedule of Other Income, (Expense) Net
| Year ended July 31 (in thousands) | 2021 | 2020 | ||||||
| Foreign currency transaction gains | $ | 1,009 | $ | 370 | ||||
| Equity in net loss of investee | (1,099 | ) | — | |||||
| Write-off of tax assets related to prior periods | — | (1,346 | ) | |||||
| Gain (loss) on investments | 8,830 | (336 | ) | |||||
| Other | (824 | ) | 45 | |||||
| TOTAL | $ | 7,916 | $ | (1,267 | ) | |||
Note 18—Income Taxes
The components of income before income taxes are as follows:
Components of Income Before Income Taxes
| Year ended July 31 (in thousands) | 2021 | 2020 | ||||||
| Domestic | $ | 60,969 | $ | 13,380 | ||||
| Foreign | 4,255 | 4,338 | ||||||
| INCOME BEFORE INCOME TAXES | $ | 65,224 | $ | 17,718 | ||||
Significant components of the Company’s deferred income tax assets consist of the following:
Significant Components of Deferred Income Taxes
| July 31 (in thousands) | 2021 | 2020 | ||||||
| Deferred income tax assets: | ||||||||
| Bad debt reserve | $ | 1,011 | $ | 854 | ||||
| Accrued expenses | 3,456 | 2,963 | ||||||
| Stock options and restricted stock | 980 | 1,226 | ||||||
| Charitable contributions | 778 | 659 | ||||||
| Depreciation | (373 | ) | (71 | ) | ||||
| Unrealized gain | (1,826 | ) | (302 | ) | ||||
| Net operating loss | 49,368 | 62,588 | ||||||
| Deferred revenue | (352 | ) | (705 | ) | ||||
| Total deferred income tax assets | 53,042 | 67,212 | ||||||
| Valuation allowance | (11,540 | ) | (58,700 | ) | ||||
| NET DEFERRED INCOME TAX ASSETS | $ | 41,502 | $ | 8,512 | ||||
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The (provision for) benefit from income taxes consist of the following:
Schedule of (Provision for) Benefits from Income Taxes
| Year ended July 31 (in thousands) | 2021 | 2020 | 2023 | 2022 | 2021 | |||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | — | $ | — | $ | (47 | ) | $ | (45 | ) | $ | — | ||||||||
| State and local | (512 | ) | (46 | ) | (1,511 | ) | (863 | ) | (512 | ) | ||||||||||
| Foreign | (811 | ) | (177 | ) | (1,275 | ) | (729 | ) | (811 | ) | ||||||||||
| Current | (1,323 | ) | (223 | ) | (2,833 | ) | (1,637 | ) | (1,323 | ) | ||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | 26,408 | 8,345 | (14,340 | ) | (2,596 | ) | 26,408 | |||||||||||||
| State and local | (57 | ) | 12 | 16 | (19 | ) | (57 | ) | ||||||||||||
| Foreign | 6,639 | (4,434 | ) | 716 | (1,626 | ) | 6,639 | |||||||||||||
| Deferred | 32,990 | 3,923 | (13,608 | ) | (4,241 | ) | 32,990 | |||||||||||||
| BENEFIT FROM INCOME TAXES | $ | 31,667 | $ | 3,700 | ||||||||||||||||
| (PROVISION FOR) BENEFIT FROM INCOME TAXES | $ | (16,441 | ) | $ | (5,878 | ) | $ | 31,667 | ||||||||||||
The differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes provided are as follows:
Schedule of Differences Between Income Taxes Expected Federal Statutory Income Taxes
| Year ended July 31 (in thousands) | 2021 | 2020 | 2023 | 2022 | 2021 | |||||||||||||||
| U.S. federal income tax at statutory rate | $ | (13,697 | ) | $ | (3,721 | ) | $ | (12,770 | ) | $ | (7,325 | ) | $ | (13,697 | ) | |||||
| Valuation allowance | 47,862 | 15,470 | 970 | 1,147 | 47,862 | |||||||||||||||
| Foreign tax rate differential | (190 | ) | (3,702 | ) | (1,068 | ) | (1,059 | ) | (190 | ) | ||||||||||
| Nondeductible expenses | (636 | ) | (813 | ) | (1,767 | ) | 2,044 | (636 | ) | |||||||||||
| Other | 299 | 88 | (625 | ) | 1 | 299 | ||||||||||||||
| Foreign restructuring | (1,510 | ) | (3,266 | ) | — | — | (1,510 | ) | ||||||||||||
| State and local income tax, net of federal benefit | (461 | ) | (356 | ) | (1,181 | ) | (686 | ) | (461 | ) | ||||||||||
| BENEFIT FROM INCOME TAXES | $ | 31,667 | $ | 3,700 | ||||||||||||||||
| (PROVISION FOR) BENEFIT FROM INCOME TAXES | $ | (16,441 | ) | $ | (5,878 | ) | $ | 31,667 | ||||||||||||
The Company’s cumulative undistributed foreign earnings are included in accumulated deficitretained earnings in the Company’s consolidated balance sheets and consisted of approximately $351 302million at July 31, 2021.2023. The Company has concluded that the earnings remain permanently reinvested.
At July 31, 2021,2023, the Company had U.S. federal net operating loss carryforwards of approximately $10437 million. These carry-forward lossesloss carryforwards are available to offset future U.S. federal taxable income. FederalU.S. federal net operating loss carryforwards of $10134 million expire in fiscal 20272028 through fiscal 2038, and $3 million do not expire.. The Company has foreign net operating lossesloss carryforwards of approximately $8277 million, of which approximately $7765 million does not expire, approximately $411 million expires in two to ten years and approximately $1million expires in twenty years. These foreign net operating lossesloss carryforwards are available to offset future taxable income in the countries in which the losses were incurred. The Company’s subsidiary, net2phone, has additional U.S. federal net operating lossesloss carryforwards of approximately $427 million, which will expire through fiscal 2027.With the reacquisition of net2phone by the Company in March 2006, its losses were limited under Internal Revenue Code Section 382 to approximately $7 million per year. The net operating lossesloss carryforwards do not include any excess benefits related to stock options or restricted stock.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The change in the valuation allowance is as follows:
Summary of Changes in Valuation Allowance
| Year ended July 31 (in thousands) | Balance at beginning of year | Additions charged to costs and expenses | Deductions | Balance at end of year | Balance at beginning of year | Additions charged to costs and expenses | Deductions | Balance at end of year | ||||||||||||||||||||||||
| 2023 | ||||||||||||||||||||||||||||||||
| Reserves deducted from deferred income taxes, net: | ||||||||||||||||||||||||||||||||
| Valuation allowance | $ | 11,588 | $ | 2,537 | $ | (3,507 | ) | $ | 10,618 | |||||||||||||||||||||||
| 2022 | ||||||||||||||||||||||||||||||||
| Reserves deducted from deferred income taxes, net: | ||||||||||||||||||||||||||||||||
| Valuation allowance | $ | 11,540 | $ | 48 | $ | — | $ | 11,588 | ||||||||||||||||||||||||
| 2021 | ||||||||||||||||||||||||||||||||
| Reserves deducted from deferred income taxes, net: | ||||||||||||||||||||||||||||||||
| Valuation allowance | $ | 58,700 | $ | 835 | $ | (47,995 | ) | $ | 11,540 | $ | 58,700 | $ | 835 | $ | (47,995 | ) | $ | 11,540 | ||||||||||||||
| 2020 | ||||||||||||||||||||||||||||||||
| Reserves deducted from deferred income taxes, net: | ||||||||||||||||||||||||||||||||
| Valuation allowance | $ | 74,170 | $ | — | $ | (15,470 | ) | $ | 58,700 | |||||||||||||||||||||||
In fiscal 2023, the Company decreased the valuation allowance by $1.0 million, which included a decrease of $2.8 million due to the utilization or disposal of previously valued deferred income tax assets and a release of $0.7 million for profitability in the United Kingdom, net of an establishment of $2.5 million for deferred income tax assets that were not more likely than not going to be utilized prior to expiration.
In fiscal 2021, the Company released $46.5million of its valuation allowance on the portion of the deferred income tax assets that it is more likely than not going to utilize. This release was mostly related to domestic deferred income tax assets. The Company used the framework of ASCAccounting Standards Codification Income Taxes (Topic 740) to determine whether the valuation allowance should be maintained or reversed. The Company considered the scheduled expiration of its net operating losses included in its deferred tax assets, projected future taxable income, and tax planning strategies in its assessment of the valuation allowance. The primary factors that resulted in the valuation allowance release were the three consecutive years of profitability in the United States and expected future profitability in both the United States and the United Kingdom that will utilize a significant portion of the net operating losses. The Company’s tax planning strategies were not a significant factor in the analysis.
In fiscal 2020, due to taxable income in the United States, the Company utilized deferred tax assets and released the corresponding valuation allowance to offset income tax expense of $3.5 million. In addition, in fiscal 2020, the Company released an additional $8.4 million of the valuation allowance on the portion of the deferred tax assets that it is more likely than not going to utilize because the Company forecasted future profitability in the United States.
At July 31, 20212023 and 2020,2022, the Company did not have any unrecognized income tax benefits. There were no changes in the balance of unrecognized income tax benefits in fiscal 20212023, fiscal 2022, and fiscal 2020.2021. At July 31, 2021,2023, the Company did not expect any changes in unrecognized income tax benefits during the next twelve months. In fiscal 20212023, fiscal 2022, and fiscal 2020,2021, the Company did not record any interest and penalties on income taxes. At July 31, 20212023 and 2020,2022, there was no accrued interest included in current income taxes payable.
In September 2017, the Company, IDT DT, and certain other affiliates were certified by the New Jersey Economic Development Authority as having met all of 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 and that, tax credits may be sold subject to certain conditions. The tax credits are dependent on the corporation maintaining a minimum number of employees in New Jersey. The Company has applied for several years of credits but has not yet received any credits and the Company is not assured of receiving any credits.
The Company currently remains subject to examinations of its tax returns as follows: U.S. federal tax returns for fiscal 20182020 to fiscal 2021,2023, state and local tax returns generally for fiscal 20172019 to fiscal 2021,2023, and foreign tax returns generally for fiscal 20172019 to fiscal 2021.2023.
Note 19—20—Equity
Class A Common Stock and Class B Common Stock
The rights of holders of Class A common stock and Class B common stock are identical except for certain voting and conversion rights and restrictions on transferability. The holders of Class A common stock and Class B common stock receive identical dividends per share when and if declared by the Company’s Board of Directors. In addition, the holders of Class A common stock and Class B common stock have identical and equal priority rights per share in liquidation. The Class A common stock and Class B common stock do not have any other contractual participation rights. The holders of Class A common stock are entitled to three votes per share and the holders of Class B common stock are entitled to one-tenth of a vote per share. Each share of Class A common stock may be converted into one share of Class B common stock, at any time, at the option of the holder. Shares of Class A common stock are subject to certain limitations on transferability that do not apply to shares of Class B common stock.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Stock Repurchases
The Company has an existing stock repurchase program authorized by its Board of Directors for the repurchase of shares of the Company’s Class B common stock. The Board of Directors authorized the repurchase of up to million shares in the aggregate. In fiscal 2023, the Company repurchased shares of Class B common stock for an aggregate purchase price of $13.1 million. In fiscal 2022, the Company repurchased shares of Class B common stock for an aggregate purchase price of $13.4 million. In fiscal 2021, the Company repurchased shares of Class B common stock for an aggregate purchase price of $2.8 million. In fiscal 2020, the Company repurchased shares of Class B common stock for an aggregate purchase price of $4.2 million. At July 31, 2021,2023, million shares remained available for repurchase under the stock repurchase program.
In the first quarter of fiscal 2024 through October 11, 2023, the Company repurchased shares of Class B common stock for an aggregate purchase price of $2.8 million.
In fiscal 20212023, fiscal 2022, and fiscal 2020,2021, the Company paid $1.30.8 million, $9.0 million, and $0.31.3 million, respectively, to repurchase ; ; and 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 shares issued for bonus payments, the lapsing of restrictions on awardsvesting of deferred stock units (“DSUs”), and lapsing of restrictions on restricted stock. Such shares arewere 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.
Stock Issued to Certain Executive Officers for Bonus Payments
In fiscal 2023, certain executive officers of the Company received performance bonuses for fiscal 2022 of an aggregate of $1.2 million, of which one-half was paid in cash and one-half was paid in shares of the Company’s Class B common stock. The Company issued shares of its Class B common stock with an issue date value of $0.6 million for the bonus payments.
Stock-Based Compensation Plan
The 2015 Stock Option and Incentive Plan is intended to provide incentives to officers, employees, directors, and consultants of the Company, including stock options, stock appreciation rights, limited rights, deferred stock units,DSUs, and restricted stock. On December 12, 2019,14, 2022, the Company’s stockholders approved an amendment to the Company’s 2015 Stock Option and Incentive Plan to increase the number of shares of the Company’s Class B common stock available for the grant of awards thereunder by an additional million shares. At July 31, 2021, the Company had million shares of Class B common stock reserved for awards made under the 2015 Stock Option and Incentive Plan and million shares were available for future grants.
On September 14,December 15, 2021, the Company’s Board of Directors amendedstockholders approved an amendment to the Company’s 2015 Stock Option and Incentive Plan to increase the number of shares of the Company’s Class B common stock available for the grant of awards thereunder by an additional shares. At July 31, 2023, the Company had million shares of Class B common stock reserved for awards made under the 2015 Stock Option and Incentive Plan and million shares were available for future grants.
On October 11, 2023, the Company’s Board of Directors amended the Company’s 2015 Stock Option and Incentive Plan to increase the number of shares of the Company’s Class B common stock available for grant thereunder by an additional shares. The amendment is subject to approval by the Company’s stockholders at its annual meeting of stockholders on December 15, 2021.
13, 2023.
Stock Options
Option awards are generally granted with an exercise price equal to the market price of the Company’s stock on the date of grant. option awards were granted in fiscal 20212023, fiscal 2022, or fiscal 2020.2021. The fair value of stock options was estimated on the date of the grant using a Black-Scholes valuation model. Expected volatility is based on historical volatility of the Company’s Class B common stock and other factors. The Company uses historical data on exercise of stock options, post vesting forfeitures and other factors to estimate the expected term of the stock-based payments granted. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.
Schedule of Stock Option Activity
| Number of Options (in thousands) | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||
| Outstanding at July 31, 2020 | 1,126 | $ | 14.42 | |||||||||||||
| Granted | — | — | ||||||||||||||
| Exercised | (81 | ) | (8.48 | ) | ||||||||||||
| Cancelled / Forfeited | (10 | ) | (13.72 | ) | ||||||||||||
| OUTSTANDING AT JULY 31, 2021 | 1,035 | $ | 14.89 | $ | ||||||||||||
| EXERCISABLE AT JULY 31, 2021 | 1,035 | $ | 14.89 | $ | 36,133 | |||||||||||
The outstanding and exercisable options at July 31, 2021 include options to purchase up to million shares of the Company’s Class B common stock that were granted to Howard S. Jonas on . The exercise price of these options is $ per share and the options expire on .
In fiscal 2021 and fiscal 2020, the Company received proceeds from the exercise of stock options of $0.7 million and $0.3 million, respectively, for which the Company issued and shares, respectively, of its Class B common stock. The total intrinsic value of options exercised during fiscal 2021 and fiscal 2020 was $ million and $, respectively. At July 31, 2021, there was no unrecognized compensation cost related to non-vested stock options.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Schedule of Stock Option Activity
| Number of Options (in thousands) | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||
| Outstanding at July 31, 2022 | 25 | $ | 13.72 | |||||||||||||
| Granted | — | — | ||||||||||||||
| Exercised | (13 | ) | (13.72 | ) | ||||||||||||
| Cancelled / Forfeited | — | — | ||||||||||||||
| OUTSTANDING AT JULY 31, 2023 | 12 | $ | 13.72 | $ | 125 | |||||||||||
| EXERCISABLE AT JULY 31, 2023 | 12 | $ | 13.72 | $ | 125 | |||||||||||
In fiscal 2023, fiscal 2022, and fiscal 2021, the Company received cash from the exercise of stock options of $0.2 million, $0.1 million, and $0.7 million, respectively, for which the Company issued ; ; and shares, respectively, of its Class B common stock. In addition, in April 2022, Howard S. Jonas exercised stock options for million shares of the Company’s Class B common stock that were granted on May 2, 2017. The exercise price of these options was $ per share and the expiration date was . Mr. Jonas used shares of the Company’s Class B common stock with a value of $14.9 million to pay the aggregate exercise price of the options. Mr. Jonas tendered shares of the Company’s Class B common stock with a value of $3.9 million to satisfy a portion of his tax obligations in connection with his stock option exercises.
The total intrinsic value of options exercised during fiscal 2023, fiscal 2022, and fiscal 2021 was $ million, $ million, and $ million, respectively. At July 31, 2023, there was no unrecognized compensation cost related to non-vested stock options.
Restricted Stock
The fair value of restricted shares of the Company’s Class B common stock is determined based on the closing price of the Company’s Class B common stock on the grant date.
Schedule of Grants of Restricted Shares
| (in thousands) | Number of Non-vested Shares | Weighted- Average Grant- Date Fair Value | ||||||||||||||
| Non-vested shares at July 31, 2020 | 199 | $ | 4.41 | |||||||||||||
| Number of Non-vested Shares (in thousands) | Weighted- Average Grant- Date Fair Value | |||||||||||||||
| Non-vested restricted shares at July 31, 2022 | 3 | $ | 31.80 | |||||||||||||
| Granted | 17 | 12.70 | 44 | 21.90 | ||||||||||||
| Vested | (21 | ) | (10.47 | ) | (21 | ) | (25.87 | ) | ||||||||
| Forfeited | — | — | (1 | ) | (31.80 | ) | ||||||||||
| NON-VESTED SHARES AT JULY 31, 2021 | 195 | $ | 4.49 | |||||||||||||
| NON-VESTED RESTRICTED SHARES AT JULY 31, 2023 | 25 | $ | 19.09 | |||||||||||||
At July 31, 2021,2023, there was $million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements, which is expected to be recognized over a weighted-average period of years. The total grant date fair value of shares vested in fiscal 20212023, fiscal 2022, and fiscal 20202021 was $million, $million, and $million, respectively.
Deferred Stock Units Equity Incentive ProgramPrograms
The
initial grants under this program). On January 5, 2021 and January 6, 2020,May 17, 2023, the first vesting date under the program, in accordance with the program and based on certain elections made by certain grantees, the Company issued shares of its Class B common stock for vested DSUs. Based on those elections, vesting for DSUs was delayed until February 21, 2024. Subject to continued full time employment or other service to the Company, the remaining DSUs are scheduled to vest on February 21, 2024 and February 25, 2025. The grantees will have the right to elect a later vesting date no later than January 19, 2024 for the February 21, 2024 vesting date. A grantee will have the option to elect a later vesting date for one-half or all of the shares scheduled to vest on February 21, 2024 and any DSUs that do not vest based on the grantee’s election, will be eligible to vest on February 25, 2025. The Company estimated that the fair value of the DSUs on the date of grants was an aggregate of $ million, which is being recognized on a graded vesting basis over the requisite service periods ending in February 2025. The Company used a risk neutral Monte Carlo simulation method in its valuation of the DSUs, which simulated the range of possible future values of the Company’s Class B common stock over the life of the DSUs.
| F-38 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company had a prior equity incentive program in the form of DSUs that, upon vesting, entitled the grantees to receive shares of the Company’s Class B common stock. On January 5, 2022 and January 5, 2021, the Company issued and shares, respectively, of its Class B common stock in respect of vested DSUs.
Effective as of September 21, 2020, the Company granted DSUs that were not included in the program described above, which upon vesting, entitled the grantee to receive shares of the Company’s Class B common stock. In fiscal 2023 and fiscal 2022, the Company issued and shares, respectively, of its Class B common stock in respect of vested DSUs. Based on those elections, on January 5, 2021 and January 6, 2020, vestingOn September 22, 2023, the Company issued shares of its Class B common stock for and DSUs, respectively, was delayed until the next vesting date.remaining DSUs.
Schedule of Grants of Restricted Shares
| (in thousands) | Number of Non-vested DSUs | Weighted- Average Grant- Date Fair Value | ||||||||||||||
| Non-vested shares at July 31, 2020 | 315 | $ | 10.26 | |||||||||||||
| Number of Non-vested DSUs (in thousands) | Weighted- Average Grant- Date Fair Value | |||||||||||||||
| Non-vested shares at July 31, 2022 | 3 | $ | 6.96 | |||||||||||||
| Granted | 1 | 11.19 | 198 | 27.20 | ||||||||||||
| Vested | (152 | ) | (10.07 | ) | (35 | ) | (24.83 | ) | ||||||||
| Forfeited | (10 | ) | (11.19 | ) | (1 | ) | (28.03 | ) | ||||||||
| NON-VESTED SHARES AT JULY 31, 2021 | 154 | $ | 10.39 | |||||||||||||
| NON-VESTED SHARES AT JULY 31, 2023 | 165 | $ | 27.38 | |||||||||||||
All of the non-vested DSUs outstanding at July 31, 2021 are eligible to vest (if the conditions therefor are satisfied) on January 5, 2022, the final vesting date under the program. At July 31, 2021,2023, there was $0$million of total unrecognized compensation cost related to non-vested DSUs, which is expected to be recognized over a weighted-average period of years. The total grant date fair value of DSUs vested in fiscal 20212023, fiscal 2022, and fiscal 20202021 was $million, $million, and $million, respectively.
Stock Issued to an Employee
IDT CORPORATION
In fiscal 2023, the Company granted shares of its Class B common stock to an employee. The Company recorded stock-based compensation expense and an increase in “Additional paid-in capital” of $ million for this grant, which was the fair value of the shares on the grant date.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NRS Restricted Stock Grants
In February 2022, restricted shares of NRS’ Class B common stock representing % of its outstanding capital stock on a fully diluted basis were granted to certain employees of the Company for services provided. The Company recorded stock-based compensation expense and an increase in “Additional paid-in capital” of $ million for these grants, based on the estimated fair value on the grant date.
Effective as of June 30, 2022, restricted shares of NRS’ Class B common stock representing % of its outstanding capital stock on a fully diluted basis were granted to certain NRS employees. The restrictions on the shares will lapse in three installments on each of June 1, 2024, 2026, and 2027. The Company estimated that the fair value of the restricted shares on the grant date was $3.3 million. At July 31, 2023, there was $ million of total unrecognized compensation cost related to non-vested restricted shares, which will be recognized over the vesting period.
Grant of Restricted Equity in net2phone 2.0, Inc.
On December 31, 2020, the previously approveda compensatory arrangement with each of Howard S. Jonas and Shmuel Jonas, the Company’s Chief Executive Officer, was finalized. Howard S. Jonas and Shmuel Jonas each received restricted shares of net2phone 2.0, Inc. (“net2phone 2.0”)2.0’s Class B common stock, which representsrepresented an aggregate of % of thenet2phone 2.0’s issued and outstanding common stock of net2phone 2.0. net2phone 2.0 is a new entity that owns and operates the net2phone-UCaaS segment.at July 31, 2023. The restricted shares will vest if: (a) for any fiscal quarter of net2phone 2.0 between November 1, 2020 and October 31, 2023, net2phone 2.0 records subscription revenue that is at least $18 million, and (b) as of October 31, 2023, thenet2phone 2.0’s valuation of net2phone 2.0 is $100 million or more. The restricted shares will also vest in the event, prior to October 31, 2023, net2phone 2.0 or its assets are sold at an equity valuation and on a cash-free basis of $100 million or more, regardless of whether the revenue threshold was satisfied prior thereto. The restricted shares entitle each grantee to proceeds only on a sale, spin-off, initial public offering, or other monetization of net2phone 2.0 and have protection from dilution for the first $15 million invested in the net2phone 2.0 following the grant.It is probable that these restricted shares will vest by October 31, 2023. The aggregate estimated fair value on the grant date was $0.2million based on a Monte Carlo simulation of a range of possible future revenue amounts on risk-neutral basis, to which will bea net revenue multiple was applied to determine the future enterprise value. The aggregate estimated fair value is being recognized over the vesting period.
| F-39 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 21—22—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 (Loss) IncomeLoss
| (in thousands) | Unrealized gain (loss) on available-for- sale securities | Foreign currency translation | Accumulated other comprehensive loss | Unrealized gain (loss) on available-for- sale securities | Foreign currency translation | Accumulated other comprehensive loss | ||||||||||||||||||
| Balance at July 31, 2019 | $ | — | $ | (4,858 | ) | $ | (4,858 | ) | ||||||||||||||||
| Other comprehensive income (loss) attributable to IDT Corporation | 42 | (2,594 | ) | (2,552 | ) | |||||||||||||||||||
| Balance at July 31, 2020 | 42 | (7,452 | ) | (7,410 | ) | |||||||||||||||||||
| Balance at July 31, 2020 | 42 | (7,452 | ) | (7,410 | ) | $ | 42 | $ | (7,452 | ) | $ | (7,410 | ) | |||||||||||
| Other comprehensive loss attributable to IDT Corporation | (51 | ) | (2,722 | ) | (2,773 | ) | (51 | ) | (2,722 | ) | (2,773 | ) | ||||||||||||
| BALANCE AT JULY 31, 2021 | $ | (9 | ) | $ | (10,174 | ) | $ | (10,183 | ) | |||||||||||||||
| Balance at July 31, 2021 | (9 | ) | (10,174 | ) | (10,183 | ) | ||||||||||||||||||
| Other comprehensive loss attributable to IDT Corporation | (537 | ) | (585 | ) | (1,122 | ) | ||||||||||||||||||
| Balance at July 31, 2022 | (546 | ) | (10,759 | ) | (11,305 | ) | ||||||||||||||||||
| Other comprehensive loss attributable to IDT Corporation | (99 | ) | (5,788 | ) | (5,887 | ) | ||||||||||||||||||
| BALANCE AT JULY 31, 2023 | $ | (645 | ) | $ | (16,547 | ) | $ | (17,192 | ) | |||||||||||||||
Note 22—23—Commitments and Contingencies
Coronavirus Disease (COVID-19)
The Company continues to monitor and respond to the impacts of the COVID-19 pandemic on all aspects of its business, including its customers, employees, suppliers, vendors, and business partners.
Operationally, the Company’s employees transitioned to work-from-home during the third quarter of fiscal 2020 and, to a large degree, continue to work-from-home. Beginning in the fourth quarter of fiscal 2021, certain of the Company’s employees returned to its offices on a part-time basis. The Company’s salespeople, customer service employees, technicians, and delivery employees continue to serve its independent retailers, channel partners, and customers with minimal interruption.
COVID-19 had mixed
In May 2023, the World Health Organization declared an end to COVID-19 as a public health emergency. As of the date of these consolidated financial impactsstatements, the Company continues to monitor the situation. The Company cannot predict with certainty the potential impact of COVID-19 if it re-invigorates on the Company beginning in the third quarterCompany’s results of fiscal 2020 and continuing through the fourth quarter of fiscal 2021.operations, financial condition, or cash flows.
Legal Proceedings
On January 22, 2019, Jose Rosales filed a putative class action against IDT America, IDT Domestic Telecom and IDT International in California state court alleging certain violations of employment law. Plaintiff alleges that these companies failed to compensate members of the putative class in accordance with California law. In August 2019, the Company filed a cross complaint against Rosales alleging trade secret and other violations. The parties are now seeking court approval of a settlement agreement.
On April 24, 2018, Sprint Communications Company L.P. filed a patent infringement claim against the Company and certain of its affiliates in the U.S. District Court for the District of Delaware alleging infringement of U.S. Patent Nos. 6,298,064; 6,330,224; 6,343,084; 6,452,932; 6,463,052; 6,473,429; 6,563,918; 6,633,561; 6,697,340; 6,999,463; 7,286,561; 7,324,534; 7,327,728; 7,505,454; and 7,693,131. Plaintiff was seeking damages and injunctive relief. On June 28, 2018, Sprint dismissed the complaint without prejudice. The Company is evaluating the underlying claim, and at this stage, is unable to estimate its potential liability, if any. The Company intends to vigorously defend any claim of infringement of the listed patents.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 allegesalleged that the Company aided and abetted Straight Path Chairman of the Board and Chief Executive Officer Davidi Jonas, and Howard S. Jonas in his capacity as controlling stockholder of Straight Path, in breaching their fiduciary duties to Straight Path in connection with the settlement of claims between Straight Path and the Company related to potential indemnification claims concerning Straight Path’s obligations under the Consent Decree it entered into with the Federal Communications Commission (“FCC”), as well as the sale of Straight Path’s subsidiary Straight Path IP Group, Inc. to the Company in connection with that settlement. That action was consolidated with a similar action that was initiated by The Arbitrage Fund. The Plaintiffs are seeking,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 September 24, 2017,October 3, 2023, the Court of Chancery of the State of Delaware dismissed all claims against the Company, filed a motionand found that, contrary to dismiss the amended complaint, which was ultimately denied, and which denial was affirmed byplaintiffs’ allegations, the Delaware Supreme Court.class suffered no damages. The parties are engaged in discovery. The trial is currently scheduled for May 2022. The Company intendsplaintiffs will have 30 days from entry of the final order to vigorously defend this matter (see Note 14). At this stage, the Company is unable to estimate its potential liability, if any.file an appeal.
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IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. The Company has evaluated its state tax filings with respect to the Wayfair decision and is in the process of reviewing its remittance practices. 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, is currently under auditwas audited by the Universal Service Administrative Company (“USAC”). The Internal Audit Division of USAC issued preliminary audit findings and the Company, has, in accordance with USAC’s audit procedures, appealed certain of the findings. The Company awaitsUSAC issued a final decision, by USAC on the preliminary audit findings. Depending on the findings contained inand the final decision overturned one of the Company may further appeal toinitial findings but left the FCC. Althoughremaining initial findings in place. The reversal will result in the elimination of a $1.8 million charge by the Universal Service Fund. The final decision remains pending,upheld the Company has been invoicedimposition of a $2.9million and $1.8 million on behalf ofcharge to the Federal Telecommunications Relay Services Fund and on behalf of the Universal Service Fund, respectively.(“TRS”) Fund. The Company has appealed the USAC’s final decision to the FCC and does not intend to remit payment for thesethe TRS Fund fees unless and until a negative decision on its appeal has been issued. In response to the aforementioned preliminary audit findings, the Company made certain changes to its filing policies and procedures for years that remain potentially under audit. At July 31, 20212023 and 2020,2022, the Company’s accrued expenses included $38.3 26.8million and $40.8 33.2million, respectively, for FCC-related regulatory fees for the year covered by the audit, as well as prior and subsequent years.
Purchase Commitments
At July 31, 2021,2023, the Company had purchase commitments of $3.7 10.8million 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 July 31, 2021,2023, the Company had aggregate performance bonds of $19.627.1 million outstanding.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
FCC Investigation of Straight Path Spectrum LLC
On September 20, 2016, the Company received a letter of inquiry from the Enforcement Bureau of the FCC requesting certain information and materials related to an investigation of potential violations by Straight Path Spectrum LLC (formerly a subsidiary of the Company and Straight Path) in connection with licenses to operate on the 28 GHz and 39 GHz bands of the Fixed Microwave Services. The Company has cooperated with the FCC in this matter and has responded to the letter of inquiry. If the FCC were to pursue separate action against the Company, the FCC could seek to fine or impose regulatory penalties or civil liability on the Company related to activities during the period of ownership by the Company.
Note 23—24—Related Party Transactions
Rafael Holdings, Inc.
In connection with the spin-off of Rafael in March 2018, the Company and Rafael entered into a Transition Services Agreement pursuant to which certain administrative and other services are provided by the Company and Rafael. The Company charged Rafael $0.3million and $0.4 million in each of fiscal 20212023, fiscal 2022, and fiscal 2020, respectively,2021 for services provided, net of the amounts charged by Rafael to the Company. At both July 31, 20212023 and 2020,2022, other current assets reported in the Company’s consolidated balance sheets included net receivable from Rafael of $0.2 million0.1 and $50,000, respectively.million.
See Note 4 forregarding the Company’s prior office lease commitmentsarrangements with Rafael.
Straight Path Communications Inc.
On July 5, 2017, certain Straight Path stockholders filed a putative class action and derivative complaint against the Company and others (see Note 22). On September 20, 2016, the Company received a letter of inquiry from the Enforcement Bureau of the FCC requesting certain information and materials related to an investigation of potential violations by Straight Path Spectrum LLC (formerly a subsidiary of the Company and Straight Path) in connection with licenses to operate on the 28 GHz and 39 GHz bands of the Fixed Microwave Services (see Note 22).
Genie Energy Ltd.
The Company entered into a Transition Services Agreement with Genie Energy Ltd. (“Genie”) prior to the spin-off of Genie in October 2011, which provides for certain services to be performed by the Company and Genie. The Company charged Genie $1.2 million, $1.3million, and $1.1 1.3million in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively, for services provided and other items, net of the amounts charged by Genie to the Company. At both July 31, 20212023 and 2020,2022, other current assets reported in the Company’s consolidated balance sheets included receivables from Genie of $0.2 million and $0.4million. million, respectively.
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IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Other Related Party Transactions
The Company provides office space, certain connectivity and other services to Jonas Media Group, a publishing firm owned by Howard S. Jonas. Billings for such services were $9,0002,000; $2,000; and $15,000 9,000in fiscal 20212023, fiscal 2022, and fiscal 2020,2021, respectively. The balance owed to the Company by Jonas Media Group was $26,000 4,000and $30,000 2,000as of July 31, 20212023 and 2020,2022, respectively. In September 2020, the Company reduced its fiscal 2021 billings by $7,000. The adjusted amount owed to the Company by Jonas Media Group was $19,000.
Mason and Company Consulting, LLC (“Mason and Co.”), a company owned solely by Jonathan Mason, receives annual commissions and fees for the insurance brokerage referral and placement of certain of the Company’s insurance policies. Jonathan Mason is the husband of Joyce J. Mason, the Company’s General Counsel, and brother-in-law of Howard S. Jonas. Based on information the Company received from Jonathan Mason, the Company believes that Mason and Co. received commissions and fees from payments made by the Company in the aggregate amount of $63,00062,000 in fiscal 20212023, $76,000 in fiscal 2022, and $63,000 in fiscal 2020.2021. Neither Howard S. Jonas nor Joyce Mason has any ownership or other interest in Mason and Co., or the commissions paid to Mason and Co., other than via the familial relationships with Jonathan Mason.
IDT DT leases space in a building in the Bronx, New York. The buildingYork that is owned by a limited liability company that is jointly owned by Howard S. Jonas and Shmuel Jonas. The lease, which became effective November 1, 2012, had a one-year term with a one-year renewal option. Since the expiration of this lease and until May 31, 2020, the parties continued IDT DT’s occupancy of the space on the same terms. Aggregate annual rent under the lease was $60,900. On June 1, 2020, IDT DT released the space and moved into smaller space at an annual rent ofis $18,600.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company had loans receivable outstanding from employees aggregating $0.20.5 million and $0.20.5 million at July 31, 20212023 and 2020,2022, respectively, which are included in “Other current assets” in the accompanying consolidated balance sheets.
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 yearsof employment. The plan permits the discretionary matching contributions to be granted as of December 31 of each year. All contributions made by participants vest immediately into the participant’s account. On May 27, 2021, the Company contributed newly issued shares of its Class B common stock to the Company’s 401(k) Plan for $1.0million of matching contributions. In fiscal 20212023, fiscal 2022, and fiscal 2020,2021, the Company’s expense related to the plan was $0.8 1.1 million, $1.0million, and $1.0 0.8million, respectively. The Company’s Class A common stock and Class B common stock are not investment options for the plan’s participants.
Note 25—Subsequent Event
On September 29, 2021, NRS sold shares of its Class B common stock, which represents 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 redemption of 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.