Idt Corp 10-Q for FY2023 Q2
Idt Corp (IDT)
About this 10-Q
Idt Corp filed this 10-Q on March 13, 2023, covering the quarter ended January 31, 2023 (FY2023 Q2).
Headline figures
Quarter ended January 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $313.94M
- down 6.9% from $337.06M a year earlier
- Net income
- $14.62M
- up 95.3% from net income of $7.49M a year earlier
- Diluted EPS
- $0.57
- up 103.6% from $0.28 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR
THE QUARTERLY PERIOD ENDED
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission
File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
Trading symbol:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐
As of March 8, 2023, the registrant had the following shares outstanding:
| Class A common stock, $.01 par value: | shares outstanding (excluding 1,698,000 treasury shares) |
| Class B common stock, $.01 par value: | shares outstanding (excluding 3,829,654 treasury shares) |
IDT CORPORATION
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
IDT CORPORATION
CONSOLIDATED BALANCE SHEETS
January 31, 2023 | July 31, 2022 | |||||||
| (Unaudited) | (Note 1) | |||||||
| (in thousands, except per share data) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash and cash equivalents | ||||||||
| Debt securities | ||||||||
| Equity investments | ||||||||
| Trade accounts receivable,
net of allowance for doubtful accounts of $ | ||||||||
| Disbursement prefunding | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Goodwill | ||||||||
| Other intangibles, net | ||||||||
| Equity investments | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deferred income tax assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, redeemable noncontrolling interest, and equity | ||||||||
| Current liabilities: | ||||||||
| Trade accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Customer deposits | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Redeemable noncontrolling interest | ||||||||
| Equity: | ||||||||
| IDT Corporation stockholders’ equity: | ||||||||
| Preferred stock, $par value; authorized shares—; shares issued | ||||||||
| Class A common stock, $par value; authorized shares—; shares issued and shares outstanding at January 31, 2023 and July 31, 2022 | ||||||||
| Class B common stock, $par value; authorized shares—; and shares issued and shares outstanding at January 31, 2023 and July 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost, consisting of and shares of Class A common stock and and shares of Class B common stock at January 31, 2023 and July 31, 2022, respectively | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Retained earnings (accumulated deficit) | ( | ) | ||||||
| Total IDT Corporation stockholders’ equity | ||||||||
| Noncontrolling interests | ||||||||
| Total equity | ||||||||
| Total liabilities, redeemable noncontrolling interest, and equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| 3 |
IDT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Direct cost of revenues (exclusive of depreciation and amortization) | ||||||||||||||||
| Selling, general and administrative (i) | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Severance | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Other operating gain (expense), net (see Note 10) | ( | ) | ( | ) | ||||||||||||
| Income from operations | ||||||||||||||||
| Interest income, net | ||||||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Income before income taxes | ||||||||||||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income | ||||||||||||||||
| Net income attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income attributable to IDT Corporation | $ | $ | $ | $ | ||||||||||||
| Earnings per share attributable to IDT Corporation common stockholders: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted-average number of shares used in calculation of earnings per share: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| (i) Stock-based compensation included in selling, general and administrative expenses | $ | $ | $ | $ | ||||||||||||
See accompanying notes to consolidated financial statements.
| 4 |
IDT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Other comprehensive loss: | ||||||||||||||||
| Change in unrealized loss on available-for-sale securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive income | ||||||||||||||||
| Comprehensive (income) attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive income attributable to IDT Corporation | $ | $ | $ | $ | ||||||||||||
See accompanying notes to consolidated financial statements.
| 5 |
IDT CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
| Three Months Ended January 31, 2023 (in thousands) | ||||||||||||||||||||||||||||||||
| IDT Corporation Stockholders | ||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Loss | (Accumulated Deficit) Retained Earnings | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||
| BALANCE AT OCTOBER 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| BALANCE AT JANUARY 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Six Months Ended January 31, 2023 (in thousands) | ||||||||||||||||||||||||||||||||
| IDT Corporation Stockholders | ||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Loss | (Accumulated Deficit) Retained Earnings | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||
| BALANCE AT JULY 31, 2022 | $ | | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||
| Repurchases of Class B common stock through repurchase program | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Restricted Class B common stock purchased from employees | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock issued to certain executive officers for bonus payments | ||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| BALANCE AT JANUARY 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| 6 |
IDT CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY—Continued
(Unaudited)
| Three Months Ended January 31, 2022 (in thousands) | ||||||||||||||||||||||||||||||||
| IDT Corporation Stockholders | ||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Loss | Accumulated Deficit | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||
| BALANCE AT OCTOBER 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Restricted Class B common stock purchased from employees | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| BALANCE AT JANUARY 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Six Months Ended January 31, 2022 (in thousands) | ||||||||||||||||||||||||||||||||
| IDT Corporation Stockholders | ||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Loss | Accumulated Deficit | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||
| BALANCE AT JULY 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Beginning balance, value | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Restricted Class B common stock purchased from employees | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| BALANCE AT JANUARY 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Ending balance, value | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
See accompanying notes to consolidated financial statements.
| 7 |
IDT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| 2023 | 2022 | |||||||
Six Months Ended January 31, | ||||||||
| 2023 | 2022 | |||||||
| (in thousands) | ||||||||
| Operating activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Deferred income taxes | ||||||||
| Provision for doubtful accounts receivable | ||||||||
| Net unrealized loss from marketable securities | ||||||||
| Stock-based compensation | ||||||||
| Other | ||||||||
| Change in assets and liabilities: | ||||||||
| Trade accounts receivable | ( | ) | ||||||
| Disbursement prefunding, prepaid expenses, other current assets, and other assets | ( | ) | ( | ) | ||||
| Trade accounts payable, accrued expenses, other current liabilities, and other liabilities | ( | ) | ( | ) | ||||
| Customer deposits at IDT Financial Services Limited (Gibraltar-based bank) | ( | ) | ||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Investing activities | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Purchase of convertible preferred stock in equity method investment | ( | ) | ||||||
| Payments for acquisitions, net of cash acquired | ( | ) | ||||||
| Purchases of debt securities and equity investments | ( | ) | ( | ) | ||||
| Proceeds from maturities and sales of debt securities and redemptions of equity investments | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||
| Proceeds from other liabilities | ||||||||
| Repayment of other liabilities. | ( | ) | ( | ) | ||||
| Proceeds from borrowings under revolving credit facility | ||||||||
| Repayment of borrowings under revolving credit facility. | ( | ) | ( | ) | ||||
| Proceeds from sale of redeemable equity in subsidiary | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Repurchases of Class B common stock | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents | ( | ) | ||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents | ( | ) | ||||||
| Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental schedule of non-cash financing activities | ||||||||
| Stock issued to certain executive officers for bonus payments | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| 8 |
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1—Basis of Presentation
The accompanying unaudited consolidated financial statements of IDT Corporation and its subsidiaries (the “Company” or “IDT”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended January 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2023. The balance sheet at July 31, 2022 has been derived from the Company’s audited financial statements at that date but does not include all of the information and notes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2022, as filed with the U.S. Securities and Exchange Commission (the “SEC”).
The Company’s fiscal year ends on July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated (e.g., fiscal 2023 refers to the fiscal year ending July 31, 2023).
Note 2—Business Segment Information
As
of August 1, 2022, the Company revised its reportable business segments primarily to reflect the growth of its financial technology businesses
and their increased contributions to the Company’s consolidated results. The Company’s
The Company’s reportable segments are distinguished by types of service, customers, and methods used to provide their services. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker. The accounting policies of the segments are the same as the accounting policies of the Company as a whole. There are no significant asymmetrical allocations to segments. The Company evaluates the performance of its business segments based primarily on income (loss) from operations.
The Fintech segment is comprised of BOSS Money, a provider of international money remittance and related value/payment transfer services, as well as other, significantly smaller financial services businesses, including Leaf Global Fintech Corporation (“Leaf”), a provider of digital wallet services in emerging markets, the Company’s variable interest entity (“VIE”) that operates money transfer businesses (see Note 9), and IDT Financial Services Limited (“IDT Financial Services”), the Company’s Gibraltar-based bank.
The NRS segment is an operator of a nationwide point of sale (“POS”) network providing independent retailers with store management software with credit, debit, and other electronic payment processing, as well as with other ancillary merchant services. NRS’ POS platform provides marketers with digital out-of-home advertising and transaction data.
The net2phone segment is comprised of net2phone’s cloud communications offerings.
The Traditional Communications segment includes Mobile Top-Up, which enables customers to transfer airtime and bundles of airtime, messaging, and data to international and domestic mobile accounts, BOSS Revolution Calling, an international long-distance calling service marketed primarily to immigrant communities in the United States and Canada, and IDT Global, a wholesale provider of international voice and SMS termination and outsourced traffic management solutions to telecoms worldwide. Traditional Communications also includes other small businesses and offerings including early-stage business initiatives and mature businesses in harvest mode.
Corporate costs mainly include compensation, consulting fees, treasury, tax and accounting services, human resources, corporate purchasing, corporate governance including Board of Directors’ fees, internal and external audit, investor relations, corporate insurance, corporate legal, and other corporate-related general and administrative expenses. Corporate does not generate any revenues, nor does it incur any direct cost of revenues.
| 9 |
Operating results for the business segments of the Company were as follows:
| (in thousands) | Fintech | National Retail Solutions | net2phone | Traditional Communications | Corporate | Total | ||||||||||||||||||
| Three Months Ended January 31, 2023 | ||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Three Months Ended January 31, 2022 | ||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Six Months Ended January 31, 2023 | ||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ||||||||||||||||||||
| Six Months Ended January 31, 2022 | ||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
Note 3—Revenue Recognition
The Company earns revenue from contracts with customers, primarily through the provision of retail telecommunications and payment offerings as well as wholesale international voice and SMS termination. BOSS Money, NRS, and net2phone are technology-driven, synergistic businesses that leverage the Company’s core assets. BOSS Money and NRS’ revenues are primarily recognized at a point in time, and net2phone’s revenue is mainly recognized over time. Traditional Communications are mostly minute-based, paid-voice communications services, and revenue is primarily recognized at a point in time. The Company’s most significant revenue streams are from Mobile Top-Up, BOSS Revolution Calling, and IDT Global. Mobile Top-Up and BOSS Revolution Calling are sold direct-to-consumers and through distributors and retailers.
Disaggregated Revenues
The following table shows the Company’s revenues disaggregated by business segment and service offered to customers:
Schedule of Revenues Disaggregated by Business Segment and Service Offered to Customers
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| BOSS Money | $ | $ | $ | $ | ||||||||||||
| Other | ||||||||||||||||
| Total Fintech | ||||||||||||||||
| National Retail Solutions | ||||||||||||||||
| net2phone | ||||||||||||||||
| Mobile Top-Up | ||||||||||||||||
| BOSS Revolution Calling | ||||||||||||||||
| IDT Global | ||||||||||||||||
| Other | ||||||||||||||||
| Total Traditional Communications | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 10 |
The following table shows the Company’s revenues disaggregated by geographic region, which is determined based on selling location:
Schedule of Revenues Disaggregated by Geographic Region
| (in thousands) | Fintech | National Retail Solutions | net2phone | Traditional Communications | Total | |||||||||||||||
| Three Months Ended January 31, 2023 | ||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||
| Outside the United States: | ||||||||||||||||||||
| United Kingdom | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total outside the United States | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| (in thousands) | Fintech | National Retail Solutions | net2phone | Traditional Communications | Total | |||||||||||||||
| Three Months Ended January 31, 2022 | ||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||
| Outside the United States: | ||||||||||||||||||||
| United Kingdom | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total outside the United States | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| (in thousands) | Fintech | National Retail Solutions | net2phone | Traditional Communications | Total | |||||||||||||||
| Six Months Ended January 31, 2023 | ||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||
| Outside the United States: | ||||||||||||||||||||
| United Kingdom | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total outside the United States | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| (in thousands) | Fintech | National Retail Solutions | net2phone | Traditional Communications | Total | |||||||||||||||
| Six Months Ended January 31, 2022 | ||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||
| Outside the United States: | ||||||||||||||||||||
| United Kingdom | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total outside the United States | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
Remaining Performance Obligations
The Company does not have any significant revenue from performance obligations satisfied or partially satisfied in previous reporting periods. The Company’s remaining performance obligations at January 31, 2023 and July 31, 2022 primarily had an original expected duration of one year or less.
Accounts Receivable and Contract Balances
The timing of revenue recognition may differ from the time of billing to the Company’s customers. Trade accounts receivable in the Company’s consolidated balance sheets represent unconditional rights to consideration. The Company would record a contract asset when revenue is recognized in advance of its right to bill and receive consideration. The Company has not identified any contract assets.
Contract liabilities arise when the Company receives consideration or bills its customers prior to providing the goods or services promised in the contract. The Company’s contract liability balance is primarily payments received for prepaid BOSS Revolution Calling. Contract liabilities are recognized as revenue when services are provided to the customer. The contract liability balances are presented in the Company’s consolidated balance sheets as “Deferred revenue”.
| 11 |
The following table presents information about the Company’s contract liability balance:
Schedule of Information About Contract Liabilities
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenue recognized in the period from amounts included in the contract liability balance at the beginning of the period | $ | $ | $ | $ | ||||||||||||
Deferred Customer Contract Acquisition and Fulfillment Costs
The Company recognizes its incremental costs of obtaining a contract with a customer that it expects to recover as an asset. The Company’s incremental costs of obtaining a contract with a customer are sales commissions paid to employees and third parties on sales to end users. If the amortization period would be one year or less for the asset that would be recognized from deferring these costs, the Company applies the practical expedient whereby the Company charges these costs to expense when incurred. For net2phone sales, the Company defers these costs and amortizes them over the expected customer relationship period when it is expected to exceed one year.
The Company’s costs to fulfill its contracts do not meet the criteria to be recognized as an asset, therefore these costs are charged to expense as incurred.
The Company’s deferred customer contract acquisition costs were as follows:
Schedule of Deferred Customer Contract Acquisition Costs
January 31, 2023 | July 31, 2022 | |||||||
| (in thousands) | ||||||||
| Deferred customer contract acquisition costs included in “Other current assets” | $ | $ | ||||||
| Deferred customer contract acquisition costs included in “Other assets” | ||||||||
| Total | $ | $ | ||||||
The Company’s amortization of deferred customer contract acquisition costs during the periods were as follows:
Schedule of Amortization of Deferred Customer Contract Acquisition Costs
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Amortization of deferred customer contract acquisition costs | $ | $ | $ | $ | ||||||||||||
Note 4—Leases
The
Company’s leases primarily consist of operating leases for office space. These leases have remaining terms from less than
net2phone is the lessee under equipment leases that are classified as finance leases. The assets and liabilities related to these finance leases are not material to the Company’s consolidated balance sheets.
The
Company leases office and parking space in a building and parking garage located at 520 Broad Street, Newark, New Jersey that was
previously owned by the Company’s former subsidiary, Rafael Holdings, Inc. (“Rafael”). On August 22, 2022, Rafael
sold the building and parking garage to an unrelated third party. The Company’s lease in that building continues with the new
owner. The Company leases office space in Israel from Rafael. Howard S. Jonas, the Chairman of the Company (an executive officer
position) and the Chairman of the Company’s Board of Directors, is also the Chairman of the Board of Directors and Executive
Chairman of Rafael.
| 12 |
Supplemental disclosures related to the Company’s operating leases were as follows:
Schedule of Supplemental Disclosures Related to the Company's Operating Leases
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Short-term lease cost | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | $ | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases | ||||||||||||||||
January 31, 2023 | July 31, 2022 | |||||||
| Weighted-average remaining lease term-operating leases | ||||||||
| Weighted-average discount rate-operating leases | % | % | ||||||
In
the six months ended January 31, 2023 and 2022, the Company obtained right-of-use assets of $
The Company’s aggregate operating lease liability was as follows:
Schedule of Aggregate Operating Lease Liability
January 31, 2023 | July 31, 2022 | |||||||
| (in thousands) | ||||||||
| Operating lease liabilities included in “Other current liabilities” | $ | $ | ||||||
| Operating lease liabilities included in noncurrent liabilities | ||||||||
| Total | $ | $ | ||||||
Future minimum maturities of operating lease liabilities were as follows (in thousands):
Schedule of Future Minimum Maturities of Operating Lease Liabilities
| Twelve-month period ending January 31: | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less imputed interest | ( | ) | ||
| Total operating lease liabilities | $ |
Note 5—Cash, Cash Equivalents, and Restricted Cash and Cash Equivalents
The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported in the consolidated balance sheets that equals the total of the same amounts reported in the consolidated statements of cash flows:
Schedule of Cash, Cash Equivalents, and Restricted Cash and Cash Equivalents
January 31, 2023 | July 31, 2022 | |||||||
| (in thousands) | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash and cash equivalents | ||||||||
| Total cash, cash equivalents, and restricted cash and cash equivalents | $ | $ | ||||||
At
January 31, 2023 and July 31, 2022, restricted cash and cash equivalents included $
| 13 |
Company Restricted Cash and Cash Equivalents
The
Company treats unrestricted cash and cash equivalents held by IDT Payment Services, Inc. and IDT Payment Services of New York, LLC, which
provide the Company’s international money transfer services in the United States, as substantially restricted and unavailable for
other purposes. At January 31, 2023 and July 31, 2022, “Cash and cash equivalents” in the Company’s consolidated balance
sheets included an aggregate of $
Note 6—Debt Securities
The following is a summary of available-for-sale debt securities:
Schedule of Available-for-sale Securities
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| (in thousands) | ||||||||||||||||
| January 31, 2023: | ||||||||||||||||
| U.S. Treasury bills and notes | $ | $ | $ | ( | ) | $ | ||||||||||
| Government sponsored enterprises notes | ( | ) | ||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| July 31, 2022: | ||||||||||||||||
| Certificates of deposit* | $ | $ | $ | ( | ) | $ | ||||||||||
| U.S. Treasury bills and notes | ( | ) | ||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Municipal bonds | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| * |
Proceeds
from maturities and sales of debt securities and redemptions of equity investments were $
The contractual maturities of the Company’s available-for-sale debt securities at January 31, 2023 were as follows:
Schedule of Contractual Maturities of Available-for-sale Debt Securities
| Fair Value | ||||
| (in thousands) | ||||
| Within one year | $ | |||
| After one year through five years | ||||
| After five years through ten years | ||||
| After ten years | ||||
| Total | $ | |||
The following available-for-sale debt securities were in an unrealized loss position for which other-than-temporary impairments were not recognized:
Schedule of Available-for-sale Securities, Unrealized Loss Position
Unrealized Losses | Fair Value | |||||||
| (in thousands) | ||||||||
| January 31, 2023: | ||||||||
| U.S. Treasury bills and notes | $ | $ | ||||||
| Government sponsored enterprises notes | ||||||||
| Corporate bonds | ||||||||
| Total | $ | $ | ||||||
| July 31, 2022: | ||||||||
| Certificates of deposit | $ | $ | ||||||
| U.S. Treasury bills and notes | ||||||||
| Corporate bonds | ||||||||
| Municipal bonds | ||||||||
| Total | $ | $ | ||||||
| 14 |
The following available-for-sale debt securities included in the tables above were in a continuous unrealized loss position for 12 months or longer:
Schedule of Continuous Unrealized Loss Position for 12 Months or Longer
| Unrealized Losses | Fair Value | |||||||
| (in thousands) | ||||||||
| January 31, 2023: | ||||||||
| U.S. Treasury bills and notes | $ | $ | ||||||
| Corporate bonds | ||||||||
| Total | $ | $ | ||||||
| July 31, 2022: | ||||||||
| U.S. Treasury bills and notes | $ | $ | ||||||
| Corporate bonds | ||||||||
| Total | $ | $ | ||||||
At January 31, 2023 and July 31, 2022, the Company did not intend to sell any of the debt securities included in the table above, and it is not more likely than not that the Company will be required to sell any of these securities before recovery of the unrealized losses, which may be at maturity.
Note 7—Equity Investments
Equity investments consist of the following:
Schedule of Equity Investments
January 31, 2023 | July 31, 2022 | |||||||
| (in thousands) | ||||||||
| Zedge, Inc. Class B common stock, shares at January 31, 2023 and July 31, 2022 | $ | $ | ||||||
| Rafael Holdings, Inc. Class B common stock, and shares at January 31, 2023 and July 31, 2022, respectively | ||||||||
| Other marketable equity securities | ||||||||
| Fixed income mutual funds | ||||||||
| Current equity investments | $ | $ | ||||||
| Visa Inc. Series C Convertible Participating Preferred Stock (“Visa Series C Preferred”) | $ | $ | ||||||
| Visa Inc. Series A Convertible Participating Preferred Stock (“Visa Series A Preferred”) | ||||||||
| Series B and Series C convertible preferred stock—equity method investment | ||||||||
| Hedge funds | ||||||||
| Other | ||||||||
| Noncurrent equity investments | $ | $ | ||||||
The Company received the shares of Zedge, Inc. (“Zedge”) Class B common stock and of the shares of Rafael Class B common stock set forth in the table above in connection with the lapsing of restrictions on Zedge and Rafael restricted stock held by certain of the Company’s employees and the Company’s payment of taxes on behalf of its employees related thereto. The Company purchased shares of Rafael Class B common stock in fiscal 2021. The Company sold shares of Rafael Class B common stock in November 2022. Howard S. Jonas is the Vice-Chairman of the Board of Directors of Zedge.
| 15 |
On
July 28, 2022, in connection with Visa Inc.’s second mandatory release assessment, the Company received shares of Visa Series
A Preferred and the conversion adjustment for Visa Series C Preferred was reduced to . In August 2022, the shares of Visa Series
A Preferred were converted into shares of Visa Class A common stock, which the Company sold for $
The changes in the carrying value of the Company’s equity investments without readily determinable fair values for which the Company elected the measurement alternative was as follows:
Schedule of Carrying Value of Equity Investments
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Adjustment for observable transactions involving a similar investment from the same issuer | ( | ) | ||||||||||||||
| Impairments | ||||||||||||||||
| Balance, end of the period | $ | $ | $ | $ | ||||||||||||
The
Company increased the carrying value of the shares of Visa Series C Preferred it held by $
Unrealized gains and losses for all equity investments measured at fair value included the following:
Schedule of Unrealized (losses) Gains for All Equity Investments
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net losses recognized during the period on equity investments | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less: net gains recognized during the period on equity investments sold during the period | ||||||||||||||||
| Unrealized losses recognized during the period on equity investments still held at the reporting date | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The unrealized gains and losses for all equity investments measured at fair value in the table above included the following:
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Unrealized gains (losses) recognized during the period on equity investments: | ||||||||||||||||
| Rafael Class B common stock | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Zedge Class B common stock | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Unrealized losses recognized during the period on equity investments still held at the reporting date | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Equity Method Investment
On
February 2, 2021, the Company paid $
The Company accounts for this investment using the equity method since the series B and series C convertible preferred stock are in-substance common stock, and the Company can exercise significant influence over the operating and financial policies of the EMI.
The
Company determined that on the dates of the acquisitions, there were differences of $
As
of January 31, 2023 and July 31, 2022, the Company was the holder of secured promissory notes made by the EMI in exchange for loans of an aggregate
of $
| 16 |
The following table summarizes the change in the balance of the Company’s equity method investment:
Summary of Changes in Equity Method Investments
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Purchase of convertible preferred stock | ||||||||||||||||
| Equity in the net loss of investee | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of equity method basis difference | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance, end of the period | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
As of January 31, 2023, the balance of the Company’s investment in the EMI was included in “Other current liabilities” in the accompanying consolidated balance sheet.
Summarized financial information of the EMI was as follows:
Summary of Statements of Operations
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Direct cost of revenues | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Note 8—Fair Value Measurements
The following table presents the balance of assets and liabilities measured at fair value on a recurring basis:
Schedule of Balance of Assets Measured at Fair Value on a Recurring Basis
Level 1 (1) | Level 2 (2) | Level 3 (3) | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
| January 31, 2023 | ||||||||||||||||
| Debt securities | $ | $ | $ | $ | ||||||||||||
| Equity investments included in current assets | ||||||||||||||||
| Equity investments included in noncurrent assets | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Acquisition consideration included in: | ||||||||||||||||
| Other current liabilities | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Other noncurrent liabilities | ( | ) | ( | ) | ||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| July 31, 2022 | ||||||||||||||||
| Debt securities | $ | $ | $ | $ | ||||||||||||
| Equity investments included in current assets | ||||||||||||||||
| Equity investments included in noncurrent assets | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Acquisition consideration included in: | ||||||||||||||||
| Other current liabilities | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Other noncurrent liabilities | ( | ) | ( | ) | ||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| (1) |
| (2) |
| (3) |
| 17 |
At
January 31, 2023 and July 31, 2022, the Company had $
The following table summarizes the change in the balance of the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
Schedule of Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Total gains (losses) recognized in “Other income (expense), net” | ( | ) | ||||||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
| Change in unrealized gains or losses for the period included in earnings for assets held at the end of the period | $ | $ | $ | $ | ||||||||||||
The following table summarizes the change in the balance of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
Schedule of Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Payments | ( | ) | ||||||||||||||
| Total (gains) losses included in: | ||||||||||||||||
| “Other operating gain (expense), net” | ( | ) | ( | ) | ( | ) | ||||||||||
| “Foreign currency translation adjustment” | ( | ) | ( | ) | ||||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
| Change in unrealized gains or losses for the period included in earnings for liabilities held at the end of the period | $ | $ | $ | $ | ||||||||||||
In
the six months ended January 31, 2023, the Company paid an aggregate of $
| 18 |
Fair Value of Other Financial Instruments
The estimated fair value of the Company’s other financial instruments was determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting these data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
Cash and cash equivalents, restricted cash and cash equivalents, other current assets, customer deposits, and other current liabilities. At January 31, 2023 and July 31, 2022, the carrying amount of these assets and liabilities approximated fair value because of the short period of time to maturity. The fair value estimates for cash, cash equivalents, and restricted cash and cash equivalents were classified as Level 1 and other current assets, customer deposits, and other current liabilities were classified as Level 2 of the fair value hierarchy.
Other assets and other liabilities. At January 31, 2023 and July 31, 2022, the carrying amount of these assets and liabilities approximated fair value. The fair values were estimated based on the Company’s assumptions, which were classified as Level 3 of the fair value hierarchy.
Note 9—Variable Interest Entity
The Company is the primary beneficiary of a VIE that operates money transfer businesses. The Company determined that, effective May 31, 2021, it had the power to direct the activities of the VIE that most significantly impact its economic performance, and the Company has the obligation to absorb losses of and the right to receive benefits from the VIE that could potentially be significant to it. As a result, the Company consolidates the VIE. The Company does not currently own any interest in the VIE and thus the net income incurred by the VIE was attributed to noncontrolling interests in the accompanying consolidated statements of income.
The VIE’s net income (loss) and aggregate funding (repaid to) provided by the Company were as follows:
Schedule of Net Income and Aggregate Funding Repaid to the Company by VIE
2023 | 2022 | 2023 | 2022 | |||||||||||||
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net income (loss) of the VIE | $ | $ | ( | ) | $ | $ | ||||||||||
| Aggregate funding (repaid to) provided by the Company, net | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
The VIE’s summarized consolidated balance sheet amounts are as follows:
VIE’s Summarized Consolidated Balance Sheet
January 31,2023 | July 31,2022 | |||||||
| (in thousands) | ||||||||
| Assets: | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Trade accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Due from the Company | ||||||||
| Property, plant, and equipment, net | ||||||||
| Other intangibles, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and noncontrolling interests: | ||||||||
| Trade accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Other current liabilities | ||||||||
| Due to the Company | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Noncontrolling interests | ||||||||
| Total liabilities and noncontrolling interests | $ | $ | ||||||
| 19 |
The VIE’s assets may only be used to settle the VIE’s obligations and may not be used for other consolidated entities. The VIE’s liabilities are non-recourse to the general credit of the Company’s other consolidated entities.
Note 10—Other Operating Gain (Expense), Net
The following table summarizes the other operating gain (expense), net by business segment:
Schedule of Other Operating Expense, Net
2023 | 2022 | 2023 | 2022 | |||||||||||||
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Corporate—Straight Path Communications Inc. class action legal fees | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Corporate—Straight Path Communications Inc. class action insurance claims | ||||||||||||||||
| Fintech—write-off of contingent consideration liability | ||||||||||||||||
| Fintech— government grants | ||||||||||||||||
| net2phone—write-off of contingent consideration liability | ||||||||||||||||
| net2phone—other | ( | ) | ( | ) | ||||||||||||
| Traditional Communications— cable telephony customer indemnification claim | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Traditional Communications—other | ( | ) | ( | ) | ||||||||||||
| Total other operating gain (expense), net | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Straight Path Communications Inc. Class Action
As discussed in Note 16, the Company (as well as other defendants) has been named in a pending class action on behalf of the stockholders of the Company’s former subsidiary, Straight Path Communications Inc. (“Straight Path”). The Company incurred legal fees and recorded offsetting gains from insurance claims related to this action in the three and six months ended January 31, 2023 and 2022.
Write-off of Contingent Consideration Liabilities
In the six months ended January 31, 2023, the Company determined that the requirements for a portion of the contingent consideration payments related to the Leaf acquisition would not be met. In addition, in the three months ended January 31, 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.
Government Grants
In the three and six months ended January 31, 2023, Leaf received payments from government grants for the development and commercialization of blockchain-backed financial technologies.
Indemnification Claim
Beginning in June 2019, as part of a commercial resolution, the Company indemnified a cable telephony customer related to patent infringement claims brought against the customer.
Note 11—Revolving Credit Facility
The
Company’s subsidiary, IDT Telecom, Inc. (“IDT Telecom”), entered into a credit agreement, dated as of May 17,
2021, with TD Bank, N.A. for a revolving credit facility for up to a maximum principal amount of $
| 20 |
Note 12—Equity
Stock Issued to Certain Executive Officers for Bonus Payments
In
the six months ended January 31, 2023, certain executive officers of the Company received performance bonuses for fiscal 2022 of an aggregate
of $
2015 Stock Option and Incentive Plan
On December 14, 2022, the Company’s stockholders approved an amendment to the Company’s 2015 Stock Option and Incentive Plan to increase the number of shares of the Company’s Class B common stock available for the grant of awards thereunder by an additional shares.
In
the six months ended January 31, 2023, the Company received cash from the exercise of stock options of $
In the six months ended January 31, 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.
Stock Repurchases
The
Company has an existing stock repurchase program authorized by its Board of Directors for the repurchase of shares of the Company’s
Class B common stock. The Board of Directors authorized the repurchase of up to million shares in the aggregate. In the six months
ended January 31, 2023, the Company repurchased shares of its Class B common stock for an aggregate purchase price of $
In
the six months ended January 31, 2023 and 2022, the Company paid $
Deferred Stock Units Equity Incentive Program
The weighted average grant date fair value per DSU was $. At January 31, 2023, there was $ million of total unrecognized compensation cost related to non-vested DSUs.
The Company had an existing equity incentive program in the form of DSUs that, upon vesting, entitled the grantees to receive shares of the Company’s Class B common stock. On January 5, 2022, the third and final vesting date under the program, the Company issued shares of its Class B common stock in respect of DSUs that vested on that date.
| 21 |
Note 13—Redeemable Noncontrolling Interest
On
September 29, 2021, NRS sold shares of its Class B common stock representing
The shares of NRS’ Class B common stock sold to Alta Fox have been classified as mezzanine equity in the accompanying consolidated balance sheets because they may be redeemed at the option of Alta Fox, although the shares are not mandatorily redeemable. The carrying amount of the shares includes the noncontrolling interest in the net income of NRS. The net income attributable to the mezzanine equity’s noncontrolling interest during the periods were as follows:
Schedule of Net Income Attributable to Mezzanine Equity’s Noncontrolling Interest
2023 | 2022 | 2023 | 2022 | |||||||||||||
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net income of NRS attributable to the mezzanine equity’s noncontrolling interest | $ | $ | $ | $ | ||||||||||||
Basic earnings per share is computed by dividing net income attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings per share is computed in the same manner as basic earnings per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase is anti-dilutive.
Schedule of Weighted-average Number of Shares Used in the Calculation of Basic and Diluted Earnings Per Share
2023 | 2022 | 2023 | 2022 | |||||||||||||
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Basic weighted-average number of shares | ||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||
| Stock options | ||||||||||||||||
| Non-vested restricted Class B common stock | ||||||||||||||||
| Diluted weighted-average number of shares | ||||||||||||||||
There were shares excluded from the calculation of diluted earnings per share in the three and six months ended January 31, 2023 and 2022.
| 22 |
Note 15—Accumulated Other Comprehensive Loss
The accumulated balances for each classification of other comprehensive loss were as follows:
Schedule of Accumulated Balances for Each Classification of Other Comprehensive Loss
Unrealized Loss on Available-for-Sale Securities | Foreign Currency Translation | Accumulated Other Comprehensive Loss | ||||||||||
| (in thousands) | ||||||||||||
| Balance, July 31, 2022 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive loss attributable to IDT Corporation | ( | ) | ( | ) | ( | ) | ||||||
| Balance, January 31, 2023 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Note 16—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. Beginning in the fourth quarter of fiscal 2021, certain of the Company’s employees returned to work in the Company’s offices on a hybrid 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 financial impacts on the Company beginning in the third quarter of fiscal 2020 and continuing through the third quarter of fiscal 2022.
Legal Proceedings
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.
On July 5, 2017, plaintiff JDS1, LLC, on behalf of itself and all other similarly situated stockholders of Straight Path, and derivatively on behalf of Straight Path as nominal defendant, filed a putative class action and derivative complaint in the Court of Chancery of the State of Delaware against the Company, The Patrick Henry Trust (a trust formed by Howard S. Jonas that held record and beneficial ownership of certain shares of Straight Path he formerly held), Howard S. Jonas, and each of Straight Path’s directors. The complaint alleges that the Company aided and abetted Straight Path Chairman of the Board and Chief Executive Officer Davidi Jonas, and Howard S. Jonas in his capacity as controlling stockholder of Straight Path, in breaching their fiduciary duties to Straight Path in connection with the settlement of claims between Straight Path and the Company related to potential indemnification claims concerning Straight Path’s obligations under the Consent Decree it entered into with the Federal Communications Commission (“FCC”), as well as the sale of Straight Path’s subsidiary Straight Path IP Group, Inc. to the Company in connection with that settlement. That action was consolidated with a similar action that was initiated by The Arbitrage Fund. The Plaintiffs are seeking, among other things, (i) a declaration that the action may be maintained as a class action or in the alternative, that demand on the Straight Path Board is excused; (ii) that the term sheet is invalid; (iii) awarding damages for the unfair price stockholders received in the merger between Straight Path and Verizon Communications Inc. for their shares of Straight Path’s Class B common stock; and (iv) ordering Howard S. Jonas, Davidi Jonas, and the Company to disgorge any profits for the benefit of the class Plaintiffs. On August 28, 2017, the Plaintiffs filed an amended complaint. On September 24, 2017, the Company filed a motion to dismiss the amended complaint, which was ultimately denied, and which denial was affirmed by the Delaware Supreme Court. On February 17, 2022, the court denied the Company’s motion for summary judgment. On March 10, 2022, JDS1, LLC withdrew its application to serve as class representative and lead plaintiff. On May 16, 2022, the court denied The Arbitrage Fund’s motion to serve as class representative and lead plaintiff, and approved intervenor Ardell Howard’s motion to serve as class representative. The trial commenced on August 29, 2022 for a period of five days, followed by another five-day period in December 2022. The parties are in the midst of post-trial briefing. Closing statements are scheduled to take place in May 2023. The Company is vigorously defending this matter (see Note 10). At this stage, the Company is unable to estimate its potential liability, if any.
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.
| 23 |
Sales Tax Contingency
On June 21, 2018, the United States Supreme Court rendered a decision in South Dakota v. Wayfair, Inc., holding that a state may require a remote seller with no physical presence in the state to collect and remit sales tax on goods and services provided to purchasers in the state, overturning certain existing court precedent. It is possible that one or more jurisdictions may assert that the Company has liability for periods for which it has not collected sales, use or other similar taxes, and if such an assertion or assertions were successful it could materially and adversely affect the Company’s business, financial position, and operating results. One or more jurisdictions may change their laws or policies to apply their sales, use or other similar taxes to the Company’s operations, and if such changes were made it could materially and adversely affect the Company’s business, financial position, and operating results.
Regulatory Fees Audit
The
Company’s 2017 FCC Form 499-A, which reports its calendar year 2016 revenue, was audited by the Universal Service
Administrative Company (“USAC”). The Internal Audit Division of USAC issued preliminary audit findings and the Company,
in accordance with USAC’s audit procedures, appealed certain of the findings. USAC issued a final decision, and the final
decision overturned one of the initial findings but left the remaining initial findings in place. The reversal will result in the
elimination of a $
Purchase Commitments
At
January 31, 2023, the Company had purchase commitments of $
Performance Bonds
The
Company has performance bonds issued through third parties for the benefit of various states in order to comply with the states’
financial requirements for money remittance licenses and telecommunications resellers. At January 31, 2023, the Company had aggregate
performance bonds of $
Note 17—Other Income (Expense), Net
Other income (expense), net consists of the following:
Schedule of Other (Expense) Income, Net
2023 | 2022 | 2023 | 2022 | |||||||||||||
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Foreign currency transaction gains | $ | $ | $ | $ | ||||||||||||
| Equity in net loss of investee | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Losses on investments, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other income (expense), net | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
Note 18—Income Taxes
At
January 31, 2023, the Company’s best estimate of the effective tax rate expected to be applicable for fiscal 2023 was
Note 19—Recently Issued Accounting Standards Not Yet Adopted
In June 2022, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) No. 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, that clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU also requires specific disclosures related to equity securities that are subject to contractual sales restrictions. The Company will adopt the amendments in this ASU prospectively on August 1, 2024. The Company is evaluating the impact that this ASU will have on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking current expected credit loss model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized cost of the securities. In addition, an entity will have to disclose significantly more information about allowances, credit quality indicators, and past due securities. The new provisions will be applied as a cumulative-effect adjustment to retained earnings. The Company will adopt the new standard on August 1, 2023. The Company does not expect the new standard to have a material impact on its consolidated financial statements.
| 24 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the accompanying consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2022, as filed with the U.S. Securities and Exchange Commission (or SEC).
As used below, unless the context otherwise requires, the terms “the Company,” “IDT,” “we,” “us,” and “our” refer to IDT Corporation, a Delaware corporation, its predecessor, International Discount Telecommunications, Corp., a New York corporation, and their subsidiaries, collectively.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words “believes,” “anticipates,” “expects,” “plans,” “intends,” and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks, and uncertainties that could result in those differences include, but are not limited to, those discussed under Item 1A to Part I “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended July 31, 2022. The forward-looking statements are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the SEC pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our Annual Report on Form 10-K for the fiscal year ended July 31, 2022.
Recently Issued Accounting Standards Not Yet Adopted
In June 2022, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, that clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU also requires specific disclosures related to equity securities that are subject to contractual sales restrictions. We will adopt the amendments in this ASU prospectively on August 1, 2024. We are evaluating the impact that this ASU will have on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking current expected credit loss model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized cost of the securities. In addition, an entity will have to disclose significantly more information about allowances, credit quality indicators, and past due securities. The new provisions will be applied as a cumulative-effect adjustment to retained earnings. We will adopt the new standard on August 1, 2023. We do not expect the new standard to have a material impact on our consolidated financial statements.
Results of Operations
We evaluate the performance of our business segments based primarily on income (loss) from operations. Accordingly, the income and expense line items below income (loss) from operations are only included in our discussion of the consolidated results of operations.
Coronavirus Disease (COVID-19)
We continue 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. Beginning in the fourth quarter of fiscal 2021, certain of our employees returned to work in our offices on a hybrid basis. Our salespeople, customer service employees, technicians, and delivery employees continue to serve our independent retailers, channel partners, and customers with minimal interruption.
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COVID-19 has had mixed financial impacts on our businesses beginning in the third quarter of fiscal 2020 and continuing through the third quarter of fiscal 2022. It drove increases in demand for our consumer offerings, principally BOSS Money, 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. Correspondingly, 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. COVID-19-related demand slowed the rate of decline in BOSS Revolution Calling revenue that we had experienced in prior periods, however, that impact was less significant beginning in the first quarter of fiscal 2022 compared to the similar periods in fiscal 2021, and 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. National Retail Solutions, or 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 were 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. IDT Global’s 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 the COVID-19 pandemic, the transition from offices to a more flexible workforce increased the demand for net2phone’s offerings. Customers transitioned from their on-premises phone system to net2phone’s cloud solution, ported their phone numbers, and quickly set-up their employees to work remotely. In April 2020, the release of Huddle, net2phone’s integrated video conferencing solution, significantly improved net2phone’s functionality for remote work, which also increased the demand for its services. COVID-19 had mixed financial impacts on net2phone’s 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 due to decreased levels of economic activity in those 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.
As of the date of this Quarterly Report, including 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 January 31, 2023 will be sufficient to meet our anticipated working capital and capital expenditure requirements during the twelve-month period ending January 31, 2024. However, the situation remains fluid and we cannot predict with certainty the potential impact of COVID-19 on our business, results of operations, financial condition, and cash flows.
Explanation of Performance Metrics
Our results of operations discussion include the following performance metrics:
| ● | for NRS, active point of sale, or POS, terminals, payment processing accounts, and recurring revenue, | |
| ● | for net2phone, seats and subscription revenue, and | |
| ● | for Traditional Communications, minutes of use. |
NRS uses two key metrics, among others, to measure the size of its customer base: active POS terminals and payment processing accounts. Active POS terminals are the number of POS terminals that have completed at least one transaction in the calendar month. It excludes POS terminals that are being installed. Payment processing accounts are NRS PAY accounts that can generate revenue. It excludes accounts that have been approved but not activated. NRS’ recurring revenue is NRS’ revenue in accordance with U.S. GAAP, excluding its revenue from POS terminal sales.
net2phone’s cloud communications offerings are priced on a per-seat basis, with customers paying based on the number of users in their organization. net2phone’s subscription revenue is its revenue in accordance with U.S. GAAP excluding its equipment revenue and revenue generated by a legacy SIP trunking offering in Brazil.
The trends and comparisons between periods for the number of active POS terminals, NRS PAY accounts, seats served, recurring revenue, and subscription revenue are used in the analysis of NRS’ or net2phone’s revenues and direct cost of revenues and are strong indications of the top-line growth and performance of the business.
Minutes of use is a nonfinancial metric that measures aggregate customer usage during a reporting period. Minutes of use is an important factor in BOSS Revolution Calling’s and IDT Global’s revenue recognition since satisfaction of our performance obligation occurs when the customer uses our service. Minutes of use trends and comparisons between periods are used in the analysis of revenues and direct cost of revenues.
Three and Six Months Ended January 31, 2023 Compared to Three and Six Months Ended January 31, 2022
As of August 1, 2022, we revised our reportable business segments primarily to reflect the growth of our financial technology businesses and their increased contributions to our consolidated results. Our four reportable business segments, Fintech, NRS, net2phone, and Traditional Communications, reflect management’s current approach to analyzing results, its resource allocation strategy, and its assessment of business performance. NRS was previously included in our Fintech segment. In addition, certain lines of business were reclassified to the Fintech segment from the Traditional Communications segment. Comparative segment information has been reclassified and restated in all periods to conform to the current period presentation.
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Fintech Segment
Fintech, which represented 6.5% and 4.3% of our total revenues in the three months ended January 31, 2023 and 2022, respectively, and 6.3% and 4.1% of our total revenues in the six months ended January 31, 2023 and 2022, respectively, is comprised of BOSS Money, a provider of international money remittance and related value/payment transfer services, as well as other, significantly smaller financial services businesses, including Leaf Global Fintech Corporation, or Leaf, a provider of digital wallet services in emerging markets, our variable interest entity, or VIE, that operates money transfer businesses, and IDT Financial Services Limited, or IDT Financial Services, our Gibraltar-based bank.
| Three months ended January 31, | Change | Six months ended January 31, | Change | |||||||||||||||||||||||||||||
2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| BOSS Money | $ | 17.6 | $ | 12.0 | $ | 5.6 | 46.7 | % | $ | 35.2 | $ | 24.1 | $ | 11.1 | 45.9 | % | ||||||||||||||||
| Other | 2.7 | 2.6 | 0.1 | 4.0 | 5.0 | 4.7 | 0.3 | 6.4 | ||||||||||||||||||||||||
| Total revenues | 20.3 | 14.6 | 5.7 | 39.2 | 40.2 | 28.8 | 11.4 | 39.5 | ||||||||||||||||||||||||
| Direct cost of revenues | (8.0 | ) | (6.1 | ) | 1.9 | 30.7 | (16.3 | ) | (12.1 | ) | 4.2 | 34.9 | ||||||||||||||||||||
| Selling, general and administrative | (12.8 | ) | (10.2 | ) | 2.6 | 25.7 | (23.9 | ) | (19.5 | ) | 4.4 | 22.4 | ||||||||||||||||||||
| Depreciation and amortization | (0.6 | ) | (0.6 | ) | — | 23.3 | (1.2 | ) | (1.0 | ) | 0.2 | 22.7 | ||||||||||||||||||||
| Severance | — | — | — | — | — | (0.1 | ) | (0.1 | ) | (100.0 | ) | |||||||||||||||||||||
| Other operating gain | 0.3 | — | (0.3 | ) | nm | 1.9 | — | (1.9 | ) | nm | ||||||||||||||||||||||
| (Loss) income from operations | $ | (0.8 | ) | $ | (2.3 | ) | $ | 1.5 | 64.5 | % | $ | 0.7 | $ | (3.9 | ) | $ | 4.6 | (118.2 | )% | |||||||||||||
nm—not meaningful
Revenues. Revenues from BOSS Money increased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 primarily because of increased transaction volume in BOSS Money’s direct-to-consumer digital and retail channels in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022. The increase included unusually favorable economics on certain high-volume African corridors that dissipated late in the three months ended January 31, 2023, as well as the development and introduction of new platform functionalities enabling more flexible and granular pricing strategies. BOSS Money continues to benefit from the continued expansion of its disbursement networks, particularly in Africa and the Caribbean.
Direct Cost of Revenues. Direct cost of revenues increased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 primarily due to increased direct cost of revenues in BOSS Money’s direct-to-consumer digital and retail channels, which reflected the increase in BOSS Money’s revenue.
Selling, General and Administrative. Selling, general and administrative expense increased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 primarily due to increases in debit and credit card processing charges, employee compensation, stock-based compensation expense, and sales commissions. The increase in card processing charges was the result of increased credit and debit card transactions through our BOSS Money app and other digital channels. As a percentage of Fintech’s revenue, Fintech’s selling, general and administrative expense decreased to 63.0% from 69.7% in the three months ended January 31, 2023 and 2022, respectively, and decreased to 59.4% from 67.6% in the six months ended January 31, 2023 and 2022, respectively.
Depreciation and Amortization. Depreciation and amortization expense increased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 primarily due to increased depreciation of capitalized costs of consultants and employees developing internal use software.
Other Operating Gain. In the three and six months ended January 31, 2023, Leaf received payments of $0.3 million and $0.4 million, respectively, from government grants for the development and commercialization of blockchain-backed financial technologies. In addition, in the six months ended January 31, 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.
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National Retail Solutions Segment
NRS, which represented 6.3% and 3.2% of our total revenues in the three months ended January 31, 2023 and 2022, respectively, and 6.2% and 2.9% of our total revenues in the six months ended January 31, 2023 and 2022, respectively, is an operator of a nationwide POS network providing independent retailers with store management software with credit, debit, and other electronic payment processing, as well as with other ancillary merchant services. NRS’ POS platform provides marketers with digital out-of-home advertising and transaction data.
| Three months ended January 31, | Change | Six months ended January 31, | Change | |||||||||||||||||||||||||||||
| 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Recurring | $ | 18.3 | $ | 9.0 | $ | 9.3 | 103.1 | % | $ | 36.2 | $ | 17.6 | $ | 18.6 | 105.1 | % | ||||||||||||||||
| Other | 1.5 | 1.6 | (0.1 | ) | (6.6 | ) | 2.9 | 3.1 | (0.2 | ) | (2.8 | ) | ||||||||||||||||||||
| Total revenues | 19.8 | 10.6 | 9.2 | 86.6 | 39.1 | 20.7 | 18.4 | 89.1 | ||||||||||||||||||||||||
| Direct cost of revenues | (2.2 | ) | (1.3 | ) | 0.9 | 25.0 | (4.2 | ) | (2.7 | ) | 1.5 | 54.8 | ||||||||||||||||||||
| Selling, general and administrative | (11.6 | ) | (7.1 | ) | 4.5 | 64.1 | (23.2 | ) | (14.3 | ) | 8.9 | 63.4 | ||||||||||||||||||||
| Depreciation and amortization | (0.6 | ) | (0.1 | ) | 0.5 | 224.0 | (1.1 | ) | (0.3 | ) | 0.8 | 211.9 | ||||||||||||||||||||
| Income from operations | $ | 5.4 | $ | 2.1 | $ | 3.3 | 161.1 | % | $ | 10.6 | $ | 3.4 | $ | 7.2 | 211.4 | % | ||||||||||||||||
| January 31, | Change | |||||||||||||||
| 2023 | 2022 | # | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Active POS terminals | 22.4 | 16.5 | 5.9 | 35 | % | |||||||||||
| Payment processing accounts | 12.5 | 8.0 | 4.5 | 55 | % | |||||||||||
Revenues. Revenues increased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 driven primarily by revenue growth from NRS’ digital out-of-home advertising and payment processing services, as well as the expansion of NRS’ POS network.
Direct Cost of Revenues. Direct cost of revenues increased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 primarily due to increases in the direct costs of NRS’ POS terminal sales.
Selling, General and Administrative. Selling, general and administrative expense increased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 primarily due to increases in sales commissions, as well as increases in employee compensation. As a percentage of NRS’ revenue, NRS’ selling, general and administrative expense decreased to 58.7% from 66.7% in the three months ended January 31, 2023 and 2022, respectively, and decreased to 59.4% from 68.8% in the six months ended January 31, 2023 and 2022, respectively.
Depreciation and Amortization. Depreciation and amortization expense increased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 primarily due to increased depreciation of capitalized costs of consultants and employees developing internal use software.
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net2phone Segment
The net2phone segment, which represented 5.7% and 4.0% of our total revenues in the three months ended January 31, 2023 and 2022, respectively, and 5.5% and 3.7% of our total revenues in the six months ended January 31, 2023 and 2022, respectively, is comprised of net2phone’s cloud communications offerings.
| Three months ended January 31, | Change | Six months ended January 31, | Change | |||||||||||||||||||||||||||||
| 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Subscription | $ | 16.3 | $ | 12.5 | $ | 3.8 | 30.3 | % | $ | 31.8 | $ | 24.2 | $ | 7.6 | 31.4 | % | ||||||||||||||||
| Other | 1.5 | 1.0 | 0.5 | 45.4 | 2.9 | 2.2 | 0.7 | 30.9 | ||||||||||||||||||||||||
| Total revenues | 17.8 | 13.5 | 4.3 | 31.5 | 34.7 | 26.4 | 8.3 | 31.4 | ||||||||||||||||||||||||
| Direct cost of revenues | (3.0 | ) | (2.4 | ) | 0.6 | 26.7 | (5.8 | ) | (4.8 | ) | 1.0 | 20.8 | ||||||||||||||||||||
| Selling, general and administrative | (14.0 | ) | (13.0 | ) | 1.0 | 6.9 | (27.8 | ) | (26.4 | ) | 1.4 | 5.3 | ||||||||||||||||||||
| Depreciation and amortization | (1.4 | ) | (1.3 | ) | 0.1 | 10.4 | (2.7 | ) | (2.6 | ) | 0.1 | 6.0 | ||||||||||||||||||||
| Other operating gain, net | — | 0.3 | (0.3 | ) | (100.0 | ) | — | 0.3 | (0.3 | ) | (100.0 | ) | ||||||||||||||||||||
| Loss from operations | $ | (0.6 | ) | $ | (2.9 | ) | $ | 2.3 | 79.9 | % | $ | (1.6 | ) | $ | (7.1 | ) | $ | 5.5 | 76.9 | % | ||||||||||||
| January 31, | Change | |||||||||||||||
| 2023 | 2022 | # | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Seats served | 327 | 258 | 69 | 27 | % | |||||||||||
Revenues. net2phone’s revenues increased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 driven primarily by the growth in subscription revenue in the U.S. market. The increase in seats served at January 31, 2023 compared to January 31, 2022 was led by growth in net2phone’s Latin American markets, and included approximately 9,000 seats from net2phone’s contact center as a service business.
Direct Cost of Revenues. Direct cost of revenues increased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 primarily due to the increase in revenues, with the largest increases in the U.S. market. net2phone’s focus on mid-sized businesses, multi-channel strategies, and localized offerings generated revenue growth that exceeded the increase in direct cost of revenues.
Selling, General and Administrative. Selling, general and administrative expense increased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 primarily due to increases in sales commissions, partially offset by decreases in employee compensation. As a percentage of net2phone’s revenues, net2phone’s selling, general and administrative expenses decreased to 78.4% from 96.4% in the three months ended January 31, 2023 and 2022, respectively, and decreased to 79.9% from 99.6% in the six months ended January 31, 2023 and 2022, respectively.
net2phone derives a significant portion of its revenues from existing customers. Attracting new customers usually involves additional costs compared to retention of existing customers. If existing customers’ subscriptions and related usage decrease or are terminated, net2phone will need to spend more money to acquire new customers and still may not be able to maintain its existing level of revenues or profitability. In addition, net2phone needs to acquire new customers to increase its revenues. net2phone incurs significant sales and marketing expenses to acquire new customers. It is therefore expected that selling, general and administrative expenses will remain a significant percentage of net2phone’s revenues for the foreseeable future.
Depreciation and Amortization. The increase in depreciation and amortization expense in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 was due to increased depreciation of net2phone’s telephone equipment leased to customers and increased depreciation of capitalized costs of consultants and employees developing internal use software.
Other Operating Gain, net. In the three months ended January 31, 2022, we determined that the requirements for a contingent consideration payment related to an acquisition in December 2019 would not be met before the expiration date. net2phone recognized a gain of $0.3 million in the three months ended January 31, 2022 on the write-off of this contingent consideration payment obligation.
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Traditional Communications Segment
The Traditional Communications segment, which represented 81.5% and 88.5% of our total revenues in the three months ended January 31, 2023 and 2022, respectively, and 82.0% and 89.3% of our total revenues in the six months ended January 31, 2023 and 2022, respectively, includes Mobile Top-Up, which enables customers to transfer airtime and bundles of airtime, messaging, and data to international and domestic mobile accounts, BOSS Revolution Calling, an international long-distance calling service marketed primarily to immigrant communities in the United States and Canada, and IDT Global, a wholesale provider of international voice and SMS termination and outsourced traffic management solutions to telecoms worldwide. Traditional Communications also includes other small businesses and offerings including early-stage business initiatives and mature businesses in harvest mode.
Traditional Communications’ most significant revenue streams are from Mobile Top-Up, BOSS Revolution Calling, and IDT Global. Mobile Top-Up and BOSS Revolution Calling are sold direct-to-consumers and through distributors and retailers. We receive payments for BOSS Revolution Calling, traditional calling cards, and Mobile Top-Up prior to providing the services. We recognize the revenue when services are provided to the customer. Traditional Communications’ revenues tend to be somewhat seasonal, with the second fiscal quarter (which contains Christmas and New Year’s Day) and the fourth fiscal quarter (which contains Mother’s Day and Father’s Day) typically showing higher minute volumes.
| Three months ended January 31, | Change | Six months ended January 31, | Change | |||||||||||||||||||||||||||||
| 2023 | 2022 | $/# | % | 2023 | 2022 | $/# | % | |||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Mobile Top-Up | $ | 106.1 | $ | 116.2 | $ | (10.1 | ) | (8.7 | )% | $ | 215.2 | $ | 244.7 | $ | (29.5 | ) | (12.1 | )% | ||||||||||||||
| BOSS Revolution Calling | 82.9 | 100.0 | (17.1 | ) | (17.1 | ) | 169.1 | 205.9 | (36.8 | ) | (17.9 | ) | ||||||||||||||||||||
| IDT Global | 58.6 | 73.1 | (14.5 | ) | (19.8 | ) | 120.2 | 162.3 | (42.1 | ) | (25.9 | ) | ||||||||||||||||||||
| Other | 8.4 | 9.0 | (0.6 | ) | (6.5 | ) | 17.2 | 18.3 | (1.1 | ) | (5.7 | ) | ||||||||||||||||||||
| Total revenues | 256.0 | 298.3 | (42.3 | ) | (14.2 | ) | 521.7 | 631.2 | (109.5 | ) | (17.3 | ) | ||||||||||||||||||||
| Direct cost of revenues | (209.1 | ) | (247.5 | ) | (38.4 | ) | (15.5 | ) | (427.7 | ) | (529.3 | ) | (101.6 | ) | (19.2 | ) | ||||||||||||||||
| Selling, general and administrative | (27.3 | ) | (28.5 | ) | (1.2 | ) | (4.2 | ) | (54.7 | ) | (56.8 | ) | (2.1 | ) | (3.6 | ) | ||||||||||||||||
| Depreciation and amortization | (2.4 | ) | (2.4 | ) | — | (1.3 | ) | (4.7 | ) | (4.9 | ) | (0.2 | ) | (2.9 | ) | |||||||||||||||||
| Severance | (0.2 | ) | — | 0.2 | nm | (0.3 | ) | — | 0.3 | nm | ||||||||||||||||||||||
| Income from operations | $ | 17.0 | $ | 19.9 | $ | (2.9 | ) | (14.5 | )% | $ | 34.3 | $ | 40.2 | $ | (5.9 | ) | (14.8 | )% | ||||||||||||||
| Minutes of use: | ||||||||||||||||||||||||||||||||
| BOSS Revolution Calling | 591 | 758 | (167 | ) | (22.0 | )% | 1,217 | 1,562 | (345 | ) | (22.1 | )% | ||||||||||||||||||||
| IDT Global | 1,605 | 1,958 | (353 | ) | (18.0 | ) | 3,311 | 4,018 | (707 | ) | (17.6 | ) | ||||||||||||||||||||
nm—not meaningful
Revenues. Revenues from Mobile Top-Up decreased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 primarily from the deterioration of a key corridor that was particularly impactful to revenues in the business-to-business wholesale and retail channels, partially offset by an increase in direct-to-consumer channel revenue.
Revenues and minutes of use from BOSS Revolution Calling decreased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022. BOSS Revolution Calling continues to be impacted by persistent, market-wide trends, including the proliferation of unlimited calling plans offered by wireless carriers and mobile virtual network operators, and the increasing penetration of free and paid over-the-top voice, video conferencing, and messaging services.
Revenues and minutes of use from IDT Global decreased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 as communications globally continued to transition away from international voice calling. This trend was accelerated by the impact of COVID-19 as business communications shifted from calling to video conferencing and other collaboration platforms. We expect that IDT Global will continue to be adversely impacted by these trends, and minutes of use and revenues will likely continue to decline from quarter-to-quarter, as we seek to maximize economics rather than necessarily sustain minutes of use or revenues.
Direct Cost of Revenues. Direct cost of revenues decreased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 primarily due to decreases in IDT Global, Mobile Top-Up, and BOSS Revolution Calling’s direct cost of revenues in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022, mostly due to the decrease in revenues.
Selling, General and Administrative. Selling, general and administrative expense decreased in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 primarily due to decreases in debit and credit card processing charges, employee compensation, and sales commissions, partially offset by increases in marketing expense and stock-based compensation expense. As a percentage of Traditional Communications’ revenue, Traditional Communications’ selling, general and administrative expense increased to 10.7% from 9.6% in the three months ended January 31, 2023 and 2022, respectively, and increased to 10.5% from 9.0% in the six months ended January 31, 2023 and 2022, respectively.
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Depreciation and Amortization. Depreciation and amortization expense was substantially unchanged in the three months ended January 31, 2023 compared to the similar period in fiscal 2022. Depreciation and amortization expense decreased in the six months ended January 31, 2023 compared to the similar period in fiscal 2022 primarily due to decreases in depreciation as more of our property, plant, and equipment became fully depreciated, partially offset by increases in depreciation of equipment added to our telecommunications network and capitalized costs of consultants and employees developing internal use software.
Corporate
| Three months ended January 31, | Change | Six months ended January 31, | Change | |||||||||||||||||||||||||||||
| 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| General and administrative | $ | (2.5 | ) | $ | (2.3 | ) | $ | 0.2 | 9.1 | % | $ | (4.4 | ) | $ | (4.3 | ) | $ | 0.1 | 2.3 | % | ||||||||||||
| Other operating expense, net | (0.3 | ) | (0.7 | ) | (0.4 | ) | (53.7 | ) | (1.1 | ) | (0.8 | ) | 0.3 | 43.0 | ||||||||||||||||||
| Loss from operations | $ | (2.8 | ) | $ | (3.0 | ) | $ | (0.2 | ) | (6.1 | )% | $ | (5.5 | ) | $ | (5.1 | ) | $ | 0.4 | 8.4 | % | |||||||||||
Corporate costs mainly include compensation, consulting fees, treasury, tax and accounting services, human resources, corporate purchasing, corporate governance including Board of Directors’ fees, internal and external audit, investor relations, corporate insurance, corporate legal, and other corporate-related general and administrative expenses. Corporate does not generate any revenues, nor does it incur any direct cost of revenues.
General and Administrative. Corporate general and administrative expense increased in the three months ended January 31, 2023 compared to the similar period in fiscal 2022 primarily because of increases in employee compensation, stock-based compensation expense, and consulting fees. Corporate general and administrative expense increased in the six months ended January 31, 2023 compared to the similar period in fiscal 2022 primarily because of an increase in consulting fees. As a percentage of our consolidated revenues, Corporate general and administrative expense was 0.8% and 0.7% in the three months ended January 31, 2023 and 2022, respectively, and 0.7% and 0.6% in the six months ended January 31, 2023 and 2022, respectively.
Other Operating Expense, net. As discussed in Note 16 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report, we (as well as other defendants) have been named in a pending class action on behalf of the stockholders of our former subsidiary, Straight Path Communications Inc., or Straight Path. We incurred legal fees of $1.6 million and $2.7 million in the three months ended January 31, 2023 and 2022, respectively, and $4.1 million and $3.7 million in the six months ended January 31, 2023 and 2022, respectively related to this action. Also, we recorded offsetting gains from insurance claims for this matter of $1.3 million and $2.0 million in the three months ended January 31, 2023 and 2022, respectively, and $3.0 million and $2.9 million in the six months ended January 31, 2023 and 2022, respectively.
Consolidated
The following is a discussion of certain of our consolidated expenses, and our consolidated income and expense line items below income from operations.
Related Party Lease Costs. We lease office and parking space in a building and parking garage located at 520 Broad Street, Newark, New Jersey that was previously owned by our former subsidiary, Rafael Holdings, Inc., or Rafael. On August 22, 2022, Rafael sold the building and parking garage to an unrelated third party. Our lease in that building continues with the new owner. We lease office space in Israel from Rafael. The Newark lease expires in April 2025 and the Israel lease expires in July 2025. In the three and six months ended January 31, 2023, we incurred lease costs of $32,000 and $0.2 million, respectively, in connection with the Rafael leases, which excludes Newark lease costs after August 22, 2022. In the three and six months ended January 31, 2022, we incurred lease costs of $0.5 million and $0.9 million, respectively, in connection with the Rafael leases. Lease costs incurred in connection with the Rafael leases is included in consolidated selling, general and administrative expenses.
Stock-Based Compensation Expense. Stock-based compensation expense included in consolidated selling, general and administrative expenses was $1.3 million and $0.3 million in the three months ended January 31, 2023 and 2022, respectively, and $1.9 million and $0.6 million in the six months ended January 31, 2023 and 2022, respectively. The increases were primarily due to the grant of deferred stock units, or DSUs, that, upon vesting, will entitle the grantees to receive shares of our Class B common stock. On December 5, 2022, we granted 187,975 DSUs to certain of our executive officers and other employees. Subject to continued full time employment or other service to us, the DSUs are scheduled to vest in three equal amounts on each of May 17, 2023, February 21, 2024, and February 25, 2025. 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 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 grant). In addition, the grantee will have the right to elect a later vesting date no later than April 14, 2023 for the May 17, 2023 vesting date, and 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 the then upcoming vesting date and any DSUs that do not vest based on the grantee’s election, will be eligible to vest on the subsequent scheduled vesting date. We estimated that the fair value of the DSUs on the date of grant was $5.1 million, which is being recognized on a graded vesting basis over the requisite service periods ending in February 2025. We used a risk neutral Monte Carlo simulation method in our valuation of the DSUs, which simulated the range of possible future values of our Class B common stock over the life of the DSUs. The weighted average grant date fair value per DSU was $27.20. At January 31, 2023, there was $4.2 million of total unrecognized compensation cost related to non-vested DSUs.
Effective as of June 30, 2022, restricted shares of NRS’ Class B common stock were granted to certain NRS employees. The restrictions on the shares will lapse in three installments on each of June 1, 2024, 2026, and 2027. The estimated fair value of the restricted shares on the grant date was $3.3 million, which will be recognized over the vesting period. At January 31, 2023, unrecognized compensation cost related to NRS’ non-vested Class B common stock was an aggregate of $2.9 million. The unrecognized compensation cost is expected to be recognized over the remaining vesting periods that end in fiscal 2027.
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| Three months ended January 31, | Change | Six months ended January 31, | Change | |||||||||||||||||||||||||||||
| 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Income from operations | $ | 18.2 | $ | 13.8 | $ | 4.4 | 31.6 | % | $ | 38.4 | $ | 27.6 | $ | 10.8 | 39.2 | % | ||||||||||||||||
| Interest income, net | 0.8 | 0.1 | 0.7 | 580.7 | 1.3 | 0.1 | 1.2 | 900.0 | ||||||||||||||||||||||||
| Other income (expense), net | 1.6 | (2.9 | ) | 4.5 | 154.7 | (2.2 | ) | (19.2 | ) | 17.0 | 88.4 | |||||||||||||||||||||
| Provision for income taxes | (5.3 | ) | (2.7 | ) | (2.6 | ) | (93.7 | ) | (9.6 | ) | (2.6 | ) | (7.0 | ) | (263.8 | ) | ||||||||||||||||
| Net income | 15.3 | 8.3 | 7.0 | 85.6 | 27.9 | 5.9 | 22.0 | 371.4 | ||||||||||||||||||||||||
| Net (income) attributable to noncontrolling interests | (0.7 | ) | (0.8 | ) | 0.1 | 10.1 | (2.3 | ) | (0.9 | ) | (1.4 | ) | (149.9 | ) | ||||||||||||||||||
| Net income attributable to IDT Corporation | $ | 14.6 | $ | 7.5 | $ | 7.1 | 95.3 | % | $ | 25.6 | $ | 5.0 | $ | 20.6 | 411.0 | % | ||||||||||||||||
Other Income (Expense), net. Other income (expense), net consists of the following:
| Three months ended January 31, | Six months ended January 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in millions) | ||||||||||||||||
| Foreign currency transaction gains | $ | 2.5 | $ | 0.8 | $ | 1.5 | $ | 0.6 | ||||||||
| Equity in the net loss of investee | (0.7 | ) | (0.8 | ) | (1.4 | ) | (1.4 | ) | ||||||||
| Losses on investments, net | (0.2 | ) | (2.9 | ) | (2.2 | ) | (17.5 | ) | ||||||||
| Other | — | — | (0.1 | ) | (0.9 | ) | ||||||||||
| Total other income (expense), net | $ | 1.6 | $ | (2.9 | ) | $ | (2.2 | ) | $ | (19.2 | ) | |||||
We have an investment in series B and series C convertible preferred stock of a communications company (the equity method investee, or EMI), that represents 26.57% of the outstanding shares of the EMI on an as converted basis. We account for this investment using the equity method since the series B and series C convertible preferred stock are in-substance common stock, and we can exercise significant influence over the operating and financial policies of the EMI.
The losses on investments, net in the three months ended January 31, 2023 and 2022 included unrealized gains (losses) of $0.1 million and $(1.0) million, respectively, on shares of Rafael’s Class B common stock. The losses on investments, net in the six months ended January 31, 2023 and 2022 included unrealized gains (losses) of $9,000 and $(13.5) million, respectively, on shares of Rafael’s Class B common stock.
Provision for Income Taxes. The increase in income tax expense in the three and six months ended January 31, 2023 compared to the similar periods in fiscal 2022 was primarily due to differences in the amount of taxable income earned in the various taxing jurisdictions.
Net Income Attributable to Noncontrolling Interests. The change in the net income attributable to noncontrolling interests in the three months ended January 31, 2023 compared to the similar period in fiscal 2022 was primarily due to a decline in the net income of certain subsidiaries, partially offset by increases in the net income of NRS as well as a reductions in the net loss of net2phone 2.0, Inc., which owns and operates our net2phone segment. The change in the net income attributable to noncontrolling interests in the six months ended January 31, 2023 compared to the similar period in fiscal 2022 was primarily due to increases in the net income of NRS as well as a reductions in the net loss of net2phone 2.0, Inc., partially offset by a decline in the net income of certain other subsidiaries.
Liquidity and Capital Resources
As of the date of this Quarterly Report, including the impact of COVID-19, we expect our cash from operations and the balance of cash, cash equivalents, debt securities, and current equity investments that we held on January 31, 2023 will be sufficient to meet our currently anticipated working capital and capital expenditure requirements during the twelve-month period ending January 31, 2024.
At January 31, 2023, we had cash, cash equivalents, debt securities, and current equity investments of $156.8 million and working capital (current assets in excess of current liabilities) of $85.6 million.
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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 January 31, 2023, “Cash and cash equivalents” in our consolidated balance sheet included an aggregate of $31.2 million held by IDT Payment Services, Inc. and IDT Payment Services of New York, LLC that was unavailable for other purposes.
Contractual Obligations and Commitments
The following table includes our anticipated material cash requirements from contractual obligations and other commitments at January 31, 2023:
Payments Due by Period (in millions) | Total | Less than 1 year | 1–3 years | 4–5 years | After 5 years | |||||||||||||||
| Purchase commitments | $ | 5.9 | $ | 5.9 | $ | — | $ | — | $ | — | ||||||||||
| Connectivity obligations under service agreements | 0.7 | 0.5 | 0.2 | — | — | |||||||||||||||
| Operating leases including short-term leases | 8.1 | 3.5 | 4.0 | 0.6 | — | |||||||||||||||
| Total (1) | $ | 14.7 | $ | 9.9 | $ | 4.2 | $ | 0.6 | $ | — | ||||||||||
| (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 $24.2 million in performance bonds, and up to $11.1 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
| Six months ended January 31, | ||||||||
| 2023 | 2022 | |||||||
| (in millions) | ||||||||
| Cash flows provided by (used in): | ||||||||
| Operating activities | $ | 35.6 | $ | 11.7 | ||||
| Investing activities | (11.2 | ) | (14.9 | ) | ||||
| Financing activities | (7.1 | ) | 1.8 | |||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents | 0.8 | (5.0 | ) | |||||
| Increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents | $ | 18.1 | $ | (6.4 | ) | |||
Operating Activities
Our cash flow from operations varies significantly from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable.
Gross trade accounts receivable decreased to $53.9 million at January 31, 2023 from $70.2 million at July 31, 2022 primarily due to amounts collected in the six months ended January 31, 2023 that were greater than billings during the period.
Deferred revenue arises from sales of prepaid products and varies from period to period depending on the mix and the timing of revenues. Deferred revenue decreased to $35.0 million at January 31, 2023 from $36.5 million at July 31, 2022 primarily due to decreases in the BOSS Revolution Calling and Mobile Top-Up deferred revenue balances.
Customer deposit liabilities at IDT Financial Services increased to $86.9 million at January 31, 2023 from $85.8 million at July 31, 2022. Our restricted cash and cash equivalents included $87.7 million and $86.6 million at January 31, 2023 and July 31, 2022, respectively, held by IDT Financial Services.
On June 21, 2018, the United States Supreme Court rendered a decision in South Dakota v. Wayfair, Inc., holding that a state may require a remote seller with no physical presence in the state to collect and remit sales tax on goods and services provided to purchasers in the state, overturning certain existing court precedent. It is possible that one or more jurisdictions may assert that we have liability for periods for which we have not collected sales, use or other similar taxes, and if such an assertion or assertions were successful it could materially and adversely affect our business, financial position, and operating results. One or more jurisdictions may change their laws or policies to apply their sales, use or other similar taxes to our operations, and if such changes were made it could materially and adversely affect our business, financial position, and operating results.
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As discussed in Note 16 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report, we (as well as other defendants) have been named in a pending class action on behalf of the stockholders of our former subsidiary, Straight Path. We are vigorously defending this matter. At this stage, we are unable to estimate our potential liability, if any. In addition, 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.
Investing Activities
Our capital expenditures were $10.6 million and $9.0 million in the six months ended January 31, 2023 and 2022, respectively. We currently anticipate that total capital expenditures in the twelve-month period ending January 31, 2024 will be $20 million to $22 million. We expect to fund our capital expenditures with our net cash provided by operating activities and cash, cash equivalents, debt securities, and current equity investments on hand.
On 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. The purchases increased our ownership of the EMI’s outstanding shares to 26.57% from 23.95% on an as converted basis.
Purchases of debt securities and equity investments were $28.1 million and $10.8 million in the six months ended January 31, 2023 and 2022, respectively. Proceeds from maturities and sales of debt securities and redemptions of equity investments were $27.5 million and $6.1 million in the six months ended January 31, 2023 and 2022, respectively.
Financing Activities
We distributed cash of $0.2 million and $0.2 million in the six months ended January 31, 2023 and 2022, respectively, to the noncontrolling interests in certain of our subsidiaries.
In the six months ended January 31, 2023 and 2022, we received proceeds from financing-related other liabilities of $0.3 million and $2.3 million, respectively.
In the six months ended January 31, 2023 and 2022, we repaid financing-related other liabilities of $2.0 million and $1.3 million, respectively.
Our subsidiary, IDT Telecom, Inc., or IDT Telecom, entered into a credit agreement, dated as of May 17, 2021, with TD Bank, N.A. for a revolving credit facility for up to a maximum principal amount of $25.0 million. IDT Telecom may use the proceeds to finance working capital requirements and for certain closing costs of the facility. At January 31, 2023 and July 31, 2022, there were no amounts outstanding under this facility. In the six months ended January 31, 2023 and 2022, IDT Telecom borrowed and repaid an aggregate of $2.4 million and $2.5 million, respectively, under the facility. The revolving credit facility is secured by primarily all of IDT Telecom’s assets. The principal outstanding bears interest per annum at the Intercontinental Exchange Benchmark Administration Ltd. LIBOR multiplied by the Regulation D maximum reserve requirement plus 125 to 175 basis points, depending upon IDT Telecom’s leverage ratio as computed for the most recent fiscal quarter. Interest is payable monthly, and all outstanding principal and any accrued and unpaid interest is due on May 16, 2024. IDT Telecom pays a quarterly unused commitment fee on the average daily balance of the unused portion of the $25.0 million commitment of 30 to 85 basis points, depending upon IDT Telecom’s leverage ratio as computed for the most recent fiscal quarter. IDT Telecom is required to comply with various affirmative and negative covenants as well as maintain certain targets based on financial ratios during the term of the revolving credit facility. As of January 31, 2023, IDT Telecom was in compliance with all of the covenants.
On September 29, 2021, NRS sold shares of its Class B common stock representing 2.5% of its outstanding capital stock on a fully diluted basis to Alta Fox Opportunities Fund LP, or Alta Fox, for cash of $10 million. Alta Fox has the right to request that NRS redeem all or any portion of the NRS common shares that it purchased at the per share purchase price during a period of 182 days following the fifth anniversary of this transaction. The redemption right shall terminate upon the consummation of (i) a sale of NRS or its assets for cash or securities that are listed on a national securities exchange, (ii) a public offering of NRS’ securities, or (iii) a distribution of NRS’ capital stock following which NRS’ common shares are listed on a national securities exchange.
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In the six months ended January 31, 2023, we received cash from the exercise of stock options of $0.2 million, for which we issued 12,500 shares of our Class B common stock. There were no stock option exercises in the six months ended January 31, 2022.
We have an existing stock repurchase program authorized by our Board of Directors for the repurchase of shares of our Class B common stock. The Board of Directors authorized the repurchase of up to 8.0 million shares in the aggregate. In the six months ended January 31, 2023, we repurchased 203,436 shares of Class B common stock for an aggregate purchase price of $5.0 million. There were no repurchases under the program in the six months ended January 31, 2022. At January 31, 2023, 5.0 million shares remained available for repurchase under the stock repurchase program.
In the six months ended January 31, 2023 and 2022, we paid $0.3 million and $9.0 million, respectively, to repurchase 13,403 and 200,438 shares, respectively, of our Class B common stock that were tendered by employees of ours to satisfy the employees’ tax withholding obligations in connection with shares issued for bonus payments, the vesting of DSUs, and lapsing of restrictions on restricted stock. Such shares were repurchased by us based on their fair market value as of the close of business on the trading day immediately prior to the vesting date.
Other Sources and Uses of Resources
We are considering spin-offs and other potential dispositions of certain of our subsidiaries. Some of the transactions under consideration are in early stages and others are more advanced. A spin-off may include the contribution of a significant amount of cash, cash equivalents, debt securities, and/or equity securities to the subsidiary prior to the spin-off, which would reduce our capital resources. There is no assurance at this time that any of these transactions will be completed.
We intend to, where appropriate, make strategic investments and acquisitions to complement, expand, and/or enter into new businesses. In considering acquisitions and investments, we search for opportunities to profitably grow our existing businesses and/or to add qualitatively to the range and diversification of businesses in our portfolio. At this time, we cannot guarantee that we will be presented with acquisition opportunities that meet our return-on-investment criteria, or that our efforts to make acquisitions that meet our criteria will be successful.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Foreign Currency Risk
Revenues from our international operations were 28% of our consolidated revenues in each of the three and six months ended January 31, 2023 and 2022. Therefore, a significant portion of our revenues is in currencies other than the U.S. Dollar. Our foreign currency exchange risk is somewhat mitigated by our ability to offset a portion of these non-U.S. Dollar-denominated revenues with operating expenses that are paid in the same currencies. While the impact from fluctuations in foreign exchange rates affects our revenues and expenses denominated in foreign currencies, the net amount of our exposure to foreign currency exchange rate changes at the end of each reporting period is generally not material.
Investment Risk
We hold a portion of our assets in debt and equity securities, including hedge funds, for strategic and speculative purposes. At January 31, 2023 and July 31, 2022, the value of our debt and equity security holdings was an aggregate of $45.7 million and $46.8 million, respectively, which represented 9% of our total assets at both dates. Investments in debt and equity securities carry a degree of risk and depend to a great extent on correct assessments of the future course of price movements of securities and other instruments. There can be no assurance that our investment managers will be able to accurately predict these price movements. The securities markets have in recent years been characterized by great volatility and unpredictability. Accordingly, the value of our investments may go down as well as up and we may not receive the amounts originally invested upon redemption.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of January 31, 2023.
Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended January 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 35 |
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Legal proceedings in which we are involved are described in Note 16 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report.
Item 1A. Risk Factors
There are no material changes from the risk factors previously disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended July 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information with respect to purchases by us of our shares during the second quarter of fiscal 2023:
Total Number of Shares Purchased | Average Price per Share | Total Number of Shares Purchased as part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) | |||||||||||||
| November 1-30, 2022 | — | $ | — | — | 5,010,317 | |||||||||||
| December 1-31, 2022 | — | $ | — | — | 5,010,317 | |||||||||||
| January 1–31, 2023 | — | $ | — | — | 5,010,317 | |||||||||||
| Total | — | $ | — | — | ||||||||||||
| (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. |
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
Item 6. Exhibits
* Filed or furnished herewith.
| 36 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| IDT CORPORATION | ||
| March 13, 2023 | By: | /s/ SHMUEL JONAS |
Shmuel Jonas Chief Executive Officer | ||
| March 13, 2023 | By: | /s/ MARCELO FISCHER |
Marcelo Fischer Chief Financial Officer | ||
| 37 |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Shmuel Jonas, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of IDT Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 13, 2023
| /s/ SHMUEL JONAS | |
Shmuel Jonas Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Marcelo Fischer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of IDT Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 13, 2023
| /s/ MARCELO FISCHER | |
Marcelo Fischer Chief Financial Officer |
EXHIBIT 32.1
Certification Pursuant to
18 U.S.C. Section 1350
(as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act Of 2002)
In connection with the Quarterly Report of IDT Corporation (the “Company”) on Form 10-Q for the quarter ended January 31, 2023 as filed with the Securities and Exchange Commission (the “Report”), I, Shmuel Jonas, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 13, 2023
| /s/ SHMUEL JONAS | |
Shmuel Jonas Chief Executive Officer |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to IDT Corporation and will be retained by IDT Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
Certification Pursuant to
18 U.S.C. Section 1350
(as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act Of 2002)
In connection with the Quarterly Report of IDT Corporation (the “Company”) on Form 10-Q for the quarter ended January 31, 2023 as filed with the Securities and Exchange Commission (the “Report”), I, Marcelo Fischer, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 13, 2023
| /s/ MARCELO FISCHER | |
Marcelo Fischer Chief Financial Officer |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to IDT Corporation and will be retained by IDT Corporation and furnished to the Securities and Exchange Commission or its staff upon request.