NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1—Basis of Presentation
The
accompanying unaudited consolidated financial statements of IDT Corporation and its subsidiaries (the “Company” or
“IDT”) have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and nine months ended April 30, 2021 are not necessarily indicative of the
results that may be expected for the fiscal year ending July 31, 2021. The balance sheet at July 31, 2020 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, 2020, 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 2021 refers to the fiscal year ending July 31, 2021).
Note
2—Business Segment Information
As
of August 1, 2020, the Company revised its reportable business segments to reflect the growth of its financial technology and
cloud communications businesses and their increased contributions to the Company’s consolidated results. The Company now
has three reportable business segments, Fintech, net2phone-Unified Communications as a Service (“UCaaS”), and Traditional
Communications. The revised reportable business segments reflect management’s approach to analyzing results, its resource
allocation strategy, and its assessment of business performance. Comparative segment information has been reclassified and restated
in all periods to conform to the current period presentation.
The
Company’s reportable segments are distinguished by types of service, customers, and methods used to provide their services.
The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker.
The accounting policies of the segments are the same as the accounting policies of the Company as a whole. There are no significant
asymmetrical allocations to segments. The Company evaluates the performance of its business segments based primarily on income
(loss) from operations.
The
Fintech segment comprises BOSS Revolution Money Transfer, a provider of international money remittance and related value/payment
transfer services, and National Retail Solutions (“NRS”), operator of a nationwide point of sale (“POS”)
retail network providing payment processing, digital advertising, transaction data, and ancillary services. BOSS Revolution Money
Transfer and NRS were previously included in the Company’s Telecom & Payment Services segment.
The
net2phone-UCaaS segment comprises net2phone’s cloud communications offerings, which were previously included in the Company’s
net2phone segment.
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 Carrier Services, a wholesale provider of international
voice and SMS termination and outsourced traffic management solutions to telecoms worldwide. Traditional Communications also includes
net2phone-Platform Services, which provides telephony services to cable operators and other offerings that leverage a common technology
platform, as well as smaller communications and payments offerings, many in harvest mode. Most of the Traditional Communications
segment was previously included in the Company’s Telecom & Payment Services segment except for net2phone-Platform Services,
which was previously included in the Company’s net2phone segment.
Corporate
costs include compensation, consulting fees, treasury, tax and accounting services, human resources, corporate purchasing, corporate
governance including Board of Directors’ fees, internal and external audit, investor relations, corporate insurance, corporate
legal, business development, charitable contributions, travel, and other corporate-related general and administrative expenses.
Corporate does not generate any revenues, nor does it incur any direct cost of revenues.
Operating
results for the business segments of the Company were as follows:
Schedule of Operating Results of Business Segments
|
(in thousands)
|
|
Fintech
|
|
|
net2phone-UCaaS
|
|
|
Traditional Communications
|
|
|
Corporate
|
|
|
Total
|
|
|
Three Months Ended April 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
16,644
|
|
|
$
|
11,255
|
|
|
$
|
345,932
|
|
|
$
|
—
|
|
|
$
|
373,831
|
|
|
(Loss) income from operations
|
|
|
(1,403
|
)
|
|
|
(3,684
|
)
|
|
|
20,074
|
|
|
|
(1,115
|
)
|
|
|
13,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
14,684
|
|
|
$
|
8,103
|
|
|
$
|
298,549
|
|
|
$
|
—
|
|
|
$
|
321,336
|
|
|
Income (loss) from operations
|
|
|
142
|
|
|
|
(3,643
|
)
|
|
|
9,503
|
|
|
|
(2,210
|
)
|
|
|
3,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended April 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
55,229
|
|
|
$
|
31,621
|
|
|
$
|
970,172
|
|
|
$
|
—
|
|
|
$
|
1,057,022
|
|
|
Income (loss) from operations
|
|
|
1,487
|
|
|
|
(10,744
|
)
|
|
|
54,575
|
|
|
|
(5,273
|
)
|
|
|
40,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended April 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
33,982
|
|
|
$
|
23,225
|
|
|
$
|
928,218
|
|
|
$
|
—
|
|
|
$
|
985,425
|
|
|
(Loss) income from operations
|
|
|
(5,705
|
)
|
|
|
(11,137
|
)
|
|
|
27,771
|
|
|
|
(7,207
|
)
|
|
|
3,722
|
|
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 Revolution Money Transfer, NRS, and net2phone-UCaaS
are technology-driven, synergistic businesses that leverage the Company’s core assets, and revenue is primarily recognized
at a point in time, and in some cases (mainly net2phone-UCaaS) is 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 Carrier Services. 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
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
BOSS Revolution Money Transfer
|
|
$
|
10,259
|
|
|
$
|
11,817
|
|
|
$
|
38,697
|
|
|
$
|
26,679
|
|
|
National Retail Solutions
|
|
|
6,385
|
|
|
|
2,867
|
|
|
|
16,532
|
|
|
|
7,303
|
|
|
Total Fintech
|
|
|
16,644
|
|
|
|
14,684
|
|
|
|
55,229
|
|
|
|
33,982
|
|
|
net2phone-UCaaS
|
|
|
11,255
|
|
|
|
8,103
|
|
|
|
31,621
|
|
|
|
23,225
|
|
|
Mobile Top-Up
|
|
|
132,603
|
|
|
|
85,139
|
|
|
|
325,001
|
|
|
|
237,808
|
|
|
BOSS Revolution Calling
|
|
|
111,412
|
|
|
|
112,536
|
|
|
|
342,665
|
|
|
|
343,731
|
|
|
Carrier Services
|
|
|
88,643
|
|
|
|
87,435
|
|
|
|
263,571
|
|
|
|
302,613
|
|
|
Other
|
|
|
13,274
|
|
|
|
13,439
|
|
|
|
38,935
|
|
|
|
44,066
|
|
|
Total Traditional Communications
|
|
|
345,932
|
|
|
|
298,549
|
|
|
|
970,172
|
|
|
|
928,218
|
|
|
Total
|
|
$
|
373,831
|
|
|
$
|
321,336
|
|
|
$
|
1,057,022
|
|
|
$
|
985,425
|
|
The
following table shows the Company’s revenues disaggregated by geographic region, which is determined based on selling location.
On July 31, 2020, the Company restructured certain operations for tax purposes resulting in the change of geographic sourcing
of revenues from the Netherlands to the United States.
Schedule of Revenues Disaggregated by Geographic Region
|
(in thousands)
|
|
Fintech
|
|
|
net2phone-UCaaS
|
|
|
Traditional Communications
|
|
|
Total
|
|
|
Three Months Ended April 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
16,644
|
|
|
$
|
5,839
|
|
|
$
|
240,442
|
|
|
$
|
262,925
|
|
|
Outside the United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
—
|
|
|
|
—
|
|
|
|
92,800
|
|
|
|
92,800
|
|
|
Netherlands
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
7
|
|
|
Other
|
|
|
—
|
|
|
|
5,416
|
|
|
|
12,683
|
|
|
|
18,099
|
|
|
Total outside the United States
|
|
|
—
|
|
|
|
5,416
|
|
|
|
105,490
|
|
|
|
110,906
|
|
|
Total
|
|
$
|
16,644
|
|
|
$
|
11,255
|
|
|
$
|
345,932
|
|
|
$
|
373,831
|
|
|
(in thousands)
|
|
Fintech
|
|
|
net2phone-UCaaS
|
|
|
Traditional Communications
|
|
|
Total
|
|
|
Three Months Ended April 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
14,684
|
|
|
$
|
3,988
|
|
|
$
|
205,982
|
|
|
$
|
224,654
|
|
|
Outside the United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
—
|
|
|
|
3
|
|
|
|
26,360
|
|
|
|
26,363
|
|
|
Netherlands
|
|
|
—
|
|
|
|
—
|
|
|
|
52,237
|
|
|
|
52,237
|
|
|
Other
|
|
|
—
|
|
|
|
4,112
|
|
|
|
13,970
|
|
|
|
18,082
|
|
|
Total outside the United States
|
|
|
—
|
|
|
|
4,115
|
|
|
|
92,567
|
|
|
|
96,682
|
|
|
Total
|
|
$
|
14,684
|
|
|
$
|
8,103
|
|
|
$
|
298,549
|
|
|
$
|
321,336
|
|
|
(in thousands)
|
|
Fintech
|
|
|
net2phone-UCaaS
|
|
|
Traditional Communications
|
|
|
Total
|
|
|
Nine Months Ended April 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
55,229
|
|
|
$
|
16,597
|
|
|
$
|
776,391
|
|
|
$
|
848,217
|
|
|
Outside the United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
—
|
|
|
|
—
|
|
|
|
154,150
|
|
|
|
154,150
|
|
|
Netherlands
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
14
|
|
|
Other
|
|
|
—
|
|
|
|
15,024
|
|
|
|
39,617
|
|
|
|
54,641
|
|
|
Total outside the United States
|
|
|
—
|
|
|
|
15,024
|
|
|
|
193,781
|
|
|
|
208,805
|
|
|
Total
|
|
$
|
55,229
|
|
|
$
|
31,621
|
|
|
$
|
970,172
|
|
|
$
|
1,057,022
|
|
|
(in thousands)
|
|
Fintech
|
|
|
net2phone-UCaaS
|
|
|
Traditional Communications
|
|
|
Total
|
|
|
Nine Months Ended April 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
33,982
|
|
|
$
|
10,954
|
|
|
$
|
626,424
|
|
|
$
|
671,360
|
|
|
Outside the United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
—
|
|
|
|
10
|
|
|
|
98,304
|
|
|
|
98,314
|
|
|
Netherlands
|
|
|
—
|
|
|
|
—
|
|
|
|
156,870
|
|
|
|
156,870
|
|
|
Other
|
|
|
—
|
|
|
|
12,261
|
|
|
|
46,620
|
|
|
|
58,881
|
|
|
Total outside the United States
|
|
|
—
|
|
|
|
12,271
|
|
|
|
301,794
|
|
|
|
314,065
|
|
|
Total
|
|
$
|
33,982
|
|
|
$
|
23,225
|
|
|
$
|
928,218
|
|
|
$
|
985,425
|
|
Remaining
Performance Obligations
The
Company does not have any significant revenue from performance obligations satisfied or partially satisfied in previous
reporting periods. The Company’s remaining performance obligations at April 30, 2021 and July 31, 2020 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. An entity records a contract
asset when revenue is recognized in advance of the entity’s 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 primary component of the Company’s contract liability balance is payments received for prepaid BOSS
Revolution Calling. Contract liabilities are recognized as revenue when services are provided to the customer. The contract liability
balances are presented in the Company’s consolidated balance sheets as “Deferred revenue”.
The
following table presents information about the Company’s contract liability balance:
Schedule of Information About Contract Liability Balance
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Revenue recognized in the period from amounts included in the contract liability balance at the beginning of the period
|
|
$
|
21,926
|
|
|
$
|
23,572
|
|
|
$
|
27,665
|
|
|
$
|
31,288
|
|
Deferred
Customer Contract Acquisition and Fulfillment Costs
The
Company recognizes as an asset its incremental costs of obtaining a contract with a customer that it expects to recover. The Company
charges its direct costs to fulfill contracts to expense as incurred. The Company’s incremental costs of obtaining a contract
with a customer are sales commissions paid to acquire customers. The Company applies the practical expedient whereby the Company
primarily charges these costs to expense when incurred because the amortization period would be one year or less for the asset
that would have been recognized from deferring these costs. For net2phone-UCaaS sales, employees and third parties receive commissions
on sales to end users. The Company amortizes the deferred costs over the expected customer relationship period when it is expected
to exceed one year.
The
Company’s deferred customer contract acquisition costs were as follows:
Schedule of Deferred Customer Contract Acquisition Costs
|
|
|
April
30, 2021
|
|
|
July
31, 2020
|
|
|
|
|
(in thousands)
|
|
|
Deferred customer contract acquisition costs included in “Other current assets”
|
|
$
|
3,493
|
|
|
$
|
2,350
|
|
|
Deferred customer contract acquisition costs included in “Other assets”
|
|
|
3,206
|
|
|
|
2,384
|
|
|
Total
|
|
$
|
6,699
|
|
|
$
|
4,734
|
|
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
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Amortization of deferred customer contract acquisition costs
|
|
$
|
950
|
|
|
$
|
616
|
|
|
$
|
2,581
|
|
|
$
|
1,781
|
|
Note
4—Leases
The
Company’s leases primarily consist of operating leases for office space. These leases have remaining terms from one to five
years. net2phone-UCaaS also has operating leases for office equipment. Certain of these leases contain renewal options that may be
exercised and/or options to terminate the lease. The Company has concluded that it is not reasonably certain that it would exercise
the options to extend or terminate the leases.
net2phone-UCaaS
has equipment leases that are classified as finance leases, and net2phone-UCaaS is the lessor in various equipment leases that
are classified as sales-type finance leases. The assets and liabilities related to these finance leases are not material to the
Company’s consolidated balance sheets.
On
March 26, 2018, the Company completed a pro rata distribution of the common stock that the Company held in the Company’s
former subsidiary, Rafael Holdings, Inc. (“Rafael”) to the Company’s stockholders of record as of the close
of business on March 13, 2018 (the “Rafael Spin-Off”). Howard S. Jonas, the Chairman of the Company’s Board
of Directors, is also the Chairman of the Board of Directors of Rafael. The Company leases office space and parking in Rafael’s
building and parking garage located at 520 Broad St, Newark, New Jersey. The Company also leases office space in Israel from Rafael.
The Newark lease expires in April 2025 and the Israel lease expires in July 2025. In each of the three months ended April 30,
2021 and 2020, the Company incurred lease costs of $0.5 million, and in each of the nine months ended April 30, 2021 and 2020,
the Company incurred lease costs of $1.4 million in connection with the Rafael leases, which is included in operating lease cost
in the table below.
Supplemental
disclosures related to the Company’s operating leases were as follows:
Schedule of Supplemental Disclosures Related to the Company's Operating Leases
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Operating lease cost
|
|
$
|
700
|
|
|
$
|
707
|
|
|
$
|
2,125
|
|
|
$
|
2,130
|
|
|
Short-term lease cost
|
|
|
217
|
|
|
|
66
|
|
|
|
412
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease cost
|
|
$
|
917
|
|
|
$
|
773
|
|
|
$
|
2,537
|
|
|
$
|
2,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
694
|
|
|
$
|
687
|
|
|
$
|
2,076
|
|
|
$
|
2,056
|
|
Schedule of Supplemental Disclosures Related Weighted Average Operating Leases
|
|
|
April 30,
2021
|
|
|
July 31,
2020
|
|
|
Weighted-average remaining lease term-operating leases
|
|
|
3.5
years
|
|
|
|
4.2 years
|
|
|
Weighted-average discount rate-operating leases
|
|
|
2.9
|
%
|
|
|
3.12
|
%
|
On
September 1, 2020, the Company entered into a new lease with an aggregate operating lease liability of $0.6
million. The Company’s aggregate operating
lease liability was as follows:
On
September 1, 2020, the Company entered into a new lease with an aggregate operating lease liability of $0.6 million. The Company’s
aggregate operating lease liability was as follows:
Schedule of Aggregate Operating Lease Liability
|
|
|
April 30,
2021
|
|
|
July 31,
2020
|
|
|
|
|
(in thousands)
|
|
|
Operating lease liabilities included in “Other current liabilities”
|
|
$
|
2,516
|
|
|
$
|
2,350
|
|
|
Operating lease liabilities included in noncurrent liabilities
|
|
|
6,108
|
|
|
|
7,353
|
|
|
Total
|
|
$
|
8,624
|
|
|
$
|
9,703
|
|
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 April 30:
|
|
Apr
30, 2021
|
|
|
2022
|
|
$
|
2,787
|
|
|
2023
|
|
|
2,489
|
|
|
2024
|
|
|
1,949
|
|
|
2025
|
|
|
1,853
|
|
|
2026
|
|
|
33
|
|
|
Thereafter
|
|
|
—
|
|
|
Total lease payments
|
|
|
9,111
|
|
|
Less imputed interest
|
|
|
(487
|
)
|
|
Total operating lease liabilities
|
|
$
|
8,624
|
|
Note
5—Cash, Cash Equivalents, and Restricted Cash and Cash Equivalents
The
following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported in the
consolidated balance sheets that equals the total of the same amounts reported in the consolidated statements of cash flows:
Schedule of Cash, Cash Equivalents, and Restricted Cash and Cash Equivalents
|
|
|
April 30,
2021
|
|
|
July 31,
2020
|
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
84,017
|
|
|
$
|
84,860
|
|
|
Restricted cash and cash equivalents
|
|
|
110,992
|
|
|
|
116,362
|
|
|
Total cash, cash equivalents, and restricted cash and cash equivalents
|
|
$
|
195,009
|
|
|
$
|
201,222
|
|
At
April 30, 2021 and July 31, 2020, restricted cash and cash equivalents included $110.9
million and $116.3
million, respectively, in restricted cash and
cash equivalents for customer deposits held by IDT Financial Services Limited, the Company’s Gibraltar-based bank.
Note
6—Debt Securities
The
following is a summary of available-for-sale debt securities:
Schedule of Available-for-sale Securities
|
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
|
|
|
(in thousands)
|
|
|
April 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit*
|
|
$
|
1,927
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,927
|
|
|
U.S. Treasury bills and notes
|
|
|
1,672
|
|
|
|
—
|
|
|
|
(28
|
)
|
|
|
1,644
|
|
|
Corporate bonds
|
|
|
6,283
|
|
|
|
21
|
|
|
|
(112
|
)
|
|
|
6,192
|
|
|
Municipal bonds
|
|
|
7,091
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
7,089
|
|
|
Total
|
|
$
|
16,973
|
|
|
$
|
21
|
|
|
$
|
(142
|
)
|
|
$
|
16,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit*
|
|
$
|
13,844
|
|
|
$
|
58
|
|
|
$
|
—
|
|
|
$
|
13,902
|
|
|
U.S. Treasury bills
|
|
|
2,498
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,498
|
|
|
Municipal bonds
|
|
|
1,979
|
|
|
|
—
|
|
|
|
(16
|
)
|
|
|
1,963
|
|
|
Total
|
|
$
|
18,321
|
|
|
$
|
58
|
|
|
$
|
(16
|
)
|
|
$
|
18,363
|
|
|
|
*
|
Each of the Company’s certificates of deposit has a CUSIP,
was purchased in the secondary market through a broker and may be sold in the secondary market.
|
Proceeds
from maturities and sales of debt securities and redemptions of equity investments were $7.1
million and $1.6
million in the three months ended April 30, 2021
and 2020, respectively, and $18.7
million and $4.3
million in the nine months ended April 30, 2021
and 2020, respectively. There were no realized gains or realized losses from sales of debt securities in the three and nine months ended
April 30, 2021 and 2020. The Company uses the specific identification method in computing the realized gains and realized losses on the
sales of debt securities.
The
contractual maturities of the Company’s available-for-sale debt securities at April 30, 2021 were as follows:
Schedule of Contractual Maturities of Available-for-sale Debt Securities
|
|
|
Fair Value
|
|
|
|
|
(in thousands)
|
|
|
Within one year
|
|
$
|
5,048
|
|
|
After one year through five years
|
|
|
5,986
|
|
|
After five years through ten years
|
|
|
5,399
|
|
|
After ten years
|
|
|
419
|
|
|
Total
|
|
$
|
16,852
|
|
The
following available-for-sale debt securities were in an unrealized loss position for which other-than-temporary impairments were
not recognized:
Schedule of Available-for-sale Securities, Unrealized Loss Position
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
|
|
(in thousands)
|
|
|
April 30, 2021:
|
|
|
|
|
|
|
|
U.S. Treasury bills and notes
|
|
$
|
28
|
|
|
$
|
1,644
|
|
|
Corporate bonds
|
|
|
112
|
|
|
|
5,535
|
|
|
Municipal
bonds
|
|
|
2
|
|
|
|
5,399
|
|
|
Total
|
|
$
|
142
|
|
|
$
|
12,578
|
|
|
July 31, 2020:
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
16
|
|
|
$
|
1,963
|
|
At
April 30, 2021 and July 31, 2020, there were no securities in a continuous unrealized loss position for 12 months or longer.
Note
7—Equity Investments
Equity
investments consist of the following:
Schedule of Equity Investments
|
|
|
April 30,
2021
|
|
|
July 31,
2020
|
|
|
|
|
(in thousands)
|
|
|
Zedge, Inc. Class B common stock, 42,282 shares at April 30, 2021 and July 31, 2020
|
|
$
|
562
|
|
|
$
|
59
|
|
|
Rafael Holdings, Inc. Class B common stock, 28,320 and 27,806 shares at April 30, 2021 and July 31, 2020, respectively
|
|
|
1,171
|
|
|
|
389
|
|
|
Rafael Holdings, Inc. restricted Class B common stock, 261,894 and nil
shares at April 30, 2021 and July 31, 2020, respectively
|
|
|
10,827
|
|
|
|
—
|
|
|
Other marketable equity securities
|
|
|
1,956
|
|
|
|
—
|
|
|
Fixed income mutual funds
|
|
|
23,070
|
|
|
|
5,516
|
|
|
Current equity investments
|
|
$
|
37,586
|
|
|
$
|
5,964
|
|
|
|
|
|
|
|
|
|
|
|
|
Visa Inc. Series C Convertible Participating Preferred Stock (“Visa Series C Preferred”)
|
|
$
|
2,343
|
|
|
$
|
3,825
|
|
|
Visa Inc. Series A Convertible Participating Preferred Stock (“Visa Series A Preferred”)
|
|
|
2,920
|
|
|
|
—
|
|
|
Series B convertible preferred stock
in equity method investment
|
|
|
3,472
|
|
|
|
—
|
|
|
Hedge funds
|
|
|
3,462
|
|
|
|
4,783
|
|
|
Other
|
|
|
2,725
|
|
|
|
225
|
|
|
Noncurrent equity investments
|
|
$
|
14,922
|
|
|
$
|
8,833
|
|
On
June 1, 2016, the Company completed a pro rata distribution of the common stock that the Company held in the Company’s subsidiary
Zedge, Inc. (“Zedge”) to the Company’s stockholders of record as of the close of business on May 26, 2016. Howard S.
Jonas is the Vice-Chairman of the Board of Directors of Zedge. The Company received the Zedge Class B common shares and the unrestricted
Rafael Class B common shares 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 related thereto.
On
December 7, 2020, the Company purchased from Rafael 218,245
newly issued shares of Rafael’s Class B
common stock and a warrant to purchase up to 43,649
shares of Rafael’s Class B common stock
at an exercise price of $22.91
at any time on or after December 7, 2020 and
on or prior to June 6, 2022. The aggregate purchase price of $5.0
million was allocated $4.6
million to the shares and $0.4
million to the warrant based on their relative
purchase date fair values. The fair value of the warrant on the acquisition date was estimated using a Black-Scholes valuation model
that represented a Level 3 measurement. The purchase price was based on a per share price of $22.91,
which was the closing price of Rafael’s Class B common stock on the New York Stock Exchange on the trading day immediately preceding
the purchase date. On March 15, 2021, the Company exercised the warrant in full and purchased 43,649
shares of Rafael’s Class B common stock
for cash of $1.0
million. At April 30, 2021, these 261,894
shares of Rafael’s Class B common stock
were not available for sale, assignment, or transfer. These restrictions will lapse in June 2021 for 218,245
shares and September 2021 for 43,649
shares.
In
June 2016, upon the acquisition of Visa Europe Limited by Visa, Inc. (“Visa”), IDT Financial Services Limited received
1,830 shares of Visa Series C Preferred among other consideration. At July 31, 2020, each share of Visa Series C Preferred was
convertible into 13.722 shares of Visa Class A common stock (the “Conversion Adjustment), subject to certain conditions,
and will be convertible at the holder’s option beginning in June 2028. On September 24, 2020, in connection with Visa’s
first mandatory release assessment, the Company received 125 shares of Visa Series A Preferred and the Conversion Adjustment for
Visa Series C Preferred was reduced to 6.861. The 125 shares of Visa Series A Preferred are convertible into 12,500 shares of
Visa Class A common stock.
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
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Balance, beginning of period
|
|
$
|
2,223
|
|
|
$
|
4,345
|
|
|
$
|
4,109
|
|
|
$
|
3,919
|
|
|
Redemption for Visa mandatory release assessment
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,870
|
)
|
|
|
—
|
|
|
Adjustment for observable transactions involving a similar investment from the same issuer
|
|
|
404
|
|
|
|
(412
|
)
|
|
|
388
|
|
|
|
14
|
|
|
Redemptions
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
—
|
|
|
Impairments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance, end of the period
|
|
$
|
2,621
|
|
|
$
|
3,933
|
|
|
$
|
2,621
|
|
|
$
|
3,933
|
|
In
the three months ended April 30, 2021 and the nine months ended April 30, 2021 and 2020, the Company increased the carrying value
of the shares of Visa Series C Preferred it held by $0.4
million, $0.4 million, and $14,000,
respectively, and in the three months ended April 30, 2020, the Company decreased the carrying value of the shares of Visa Series C Preferred
it held by $0.4
million, based on the fair value of Visa Class
A common stock and a discount for lack of current marketability.
Unrealized
gains and losses for all equity investments included the following:
Schedule of Unrealized (losses) Gains for All Equity Investments
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Net gains (losses) recognized during the period on equity investments
|
|
$
|
5,435
|
|
|
$
|
(1,226
|
)
|
|
$
|
5,822
|
|
|
$
|
(817
|
)
|
|
Less: net gains and losses recognized during the period on equity investments sold during the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Unrealized gains (losses) recognized during the period on equity investments still held at the reporting date
|
|
$
|
5,435
|
|
|
$
|
(1,226
|
)
|
|
$
|
5,822
|
|
|
$
|
(817
|
)
|
Equity Method Investment
On
February 2, 2021, the Company paid $4.0
million to purchase shares of series B
convertible preferred stock of a communications company (the equity method investee, or “EMI”). The shares purchased represent
23.95%
of the outstanding shares of the EMI on
an as converted basis. The Company accounts for this investment using the equity method since the series B convertible
preferred stock is in-substance common stock, and the Company can exercise significant influence over the operating and financial
policies of the EMI.
The
following table summarizes the change in the balance of the Company’s equity method investment:
Summary
of Changes in Equity Method Investments
|
|
|
Nine Months Ended April 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Balance, beginning of period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Purchase of series B convertible preferred stock
|
|
|
4,000
|
|
|
|
—
|
|
|
Equity in the net loss of investee
|
|
|
(386
|
)
|
|
|
—
|
|
|
Amortization of equity method basis difference
|
|
|
(142
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
3,472
|
|
|
$
|
—
|
|
The
Company determined that on the date of the acquisition, there was a difference of $2.7 million between its investment in the
EMI and its proportional interest in the equity of the EMI, which represented the Company’s share of the EMI’s
customer list on the date of acquisition. This basis difference is being amortized over
the 6-year estimated life of the customer list. In the accompanying consolidated statements of operations, amortization of equity
method basis difference is included in the equity in the net loss of investee, which is recorded in “Other income (expense), net”
(see Note 15).
Summarized
unaudited statements of operations of the EMI from the date of acquisition was as follows:
Summary of Unaudited Statements of Operations
|
|
|
Three Months Ended
April 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Revenues
|
|
$
|
718
|
|
|
$
|
—
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Direct cost of revenues
|
|
|
804
|
|
|
|
—
|
|
|
Selling, general and administrative
|
|
|
1,525
|
|
|
|
—
|
|
|
Total costs and expenses
|
|
|
2,329
|
|
|
|
—
|
|
|
Loss from operations and net loss
|
|
$
|
(1,611
|
)
|
|
$
|
—
|
|
Note
8—Fair Value Measurements
The
following table presents the balance of assets and liabilities measured at fair value on a recurring basis:
Schedule of Balance of Assets Measured at Fair Value on a Recurring Basis
|
|
|
Level 1 (1)
|
|
|
Level 2 (2)
|
|
|
Level 3 (3)
|
|
|
Total
|
|
|
|
|
(in thousands)
|
|
|
April 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
$
|
1,644
|
|
|
$
|
15,208
|
|
|
$
|
—
|
|
|
$
|
16,852
|
|
|
Equity investments included in current assets
|
|
|
26,759
|
|
|
|
10,827
|
|
|
|
—
|
|
|
|
37,586
|
|
|
Equity investments included in noncurrent assets
|
|
|
—
|
|
|
|
2,920
|
|
|
|
2,343
|
|
|
|
5,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,403
|
|
|
$
|
28,955
|
|
|
$
|
2,343
|
|
|
$
|
59,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration included in other noncurrent liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(795
|
)
|
|
$
|
(795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
$
|
2,498
|
|
|
$
|
15,865
|
|
|
$
|
—
|
|
|
$
|
18,363
|
|
|
Equity investments included in current assets
|
|
|
5,964
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,964
|
|
|
Equity investments included in noncurrent assets
|
|
|
—
|
|
|
|
—
|
|
|
|
3,825
|
|
|
|
3,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,462
|
|
|
$
|
15,865
|
|
|
$
|
3,825
|
|
|
$
|
28,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration included in other noncurrent liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(396
|
)
|
|
$
|
(396
|
)
|
|
(1)
|
–
|
quoted
prices in active markets for identical assets or liabilities
|
|
(2)
|
–
|
observable
inputs other than quoted prices in active markets for identical assets and liabilities
|
|
(3)
|
–
|
no
observable pricing inputs in the market
|
At
April 30, 2021 and July 31, 2020, the Company had $3.5 million and $4.8 million, respectively, in investments in hedge funds,
which were included in noncurrent “Equity investments” in the accompanying consolidated balance sheets. The Company’s
investments in hedge funds were accounted for using the equity method, therefore they were not measured at fair value.
The
following table summarizes the change in the balance of the Company’s assets measured at fair value on a recurring basis
using significant unobservable inputs (Level 3):
Schedule of Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
|
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Balance, beginning of period
|
|
$
|
2,319
|
|
|
$
|
4,045
|
|
|
$
|
3,825
|
|
|
$
|
3,619
|
|
|
Purchase of Rafael Holdings, Inc. warrant
|
|
|
—
|
|
|
|
—
|
|
|
|
354
|
|
|
|
—
|
|
|
Exercise of Rafael Holdings, Inc. warrant
|
|
|
(380
|
)
|
|
|
—
|
|
|
|
(380
|
)
|
|
|
—
|
|
|
Redemption for Visa mandatory release assessment
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,870
|
)
|
|
|
—
|
|
|
Total gains (losses) recognized in “Other income (expense), net”
|
|
|
404
|
|
|
|
(412
|
)
|
|
|
414
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
2,343
|
|
|
$
|
3,633
|
|
|
$
|
2,343
|
|
|
$
|
3,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Balance, beginning of period
|
|
$
|
799
|
|
|
$
|
370
|
|
|
$
|
396
|
|
|
$
|
—
|
|
|
Transfer into Level 3 from acquisitions (see Note 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
393
|
|
|
|
375
|
|
|
Total (gains) losses included in “Foreign currency translation adjustment”
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
6
|
|
|
|
(10
|
)
|
|
Balance, end of period
|
|
$
|
795
|
|
|
$
|
365
|
|
|
$
|
795
|
|
|
$
|
365
|
|
|
Change in unrealized gains or losses for the period included in earnings for liabilities held at the end of the period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fair
Value of Other Financial Instruments
The
estimated fair value of the Company’s other financial instruments was determined using available market information or other
appropriate valuation methodologies. However, considerable judgment is required in interpreting these data to develop estimates
of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid
in a current market exchange.
Cash
and cash equivalents, restricted cash and cash equivalents, other current assets, customer deposits, and other current liabilities.
At April 30, 2021 and July 31, 2020, the carrying amount of these assets and liabilities approximated fair value because of
the short period of time to maturity. The fair value estimates for cash, cash equivalents, and restricted cash and cash equivalents
were classified as Level 1 and other current assets, customer deposits, and other current liabilities were classified as Level
2 of the fair value hierarchy.
Other
assets and other liabilities. At April 30, 2021 and July 31, 2020, 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—Acquisitions
On
December 3, 2020, the Company’s subsidiary IDT International Telecom, Inc. (“IDTIT”) acquired 51% of the issued
shares of a company that provides a digital distribution platform facilitating supply and distribution of mobile airtime and data
top-ups and other services across borders via a single point application programming interface. The operating results of the acquired
company from the date of acquisition, which were not significant, are included in the Company’s consolidated financial statements.
The
acquisition date fair value of the consideration consisted of the following (in thousands):
Schedule of Acquisition Date Fair Value of Consideration
|
|
|
|
December 03 2020
|
|
|
Cash paid
|
|
$
|
2,732
|
|
|
Cash acquired
|
|
|
(344
|
)
|
|
Cash paid, net of cash acquired
|
|
|
2,388
|
|
|
Contingent consideration
|
|
|
393
|
|
|
Total fair value of consideration, net of cash acquired
|
|
$
|
2,781
|
|
The
contingent consideration of $0.5 million will be paid (a) no later than November 30, 2021 if the acquired company generates EBITDA
(as defined in the purchase agreement) of no less than $1.0 million between October 1, 2020 and September 30, 2021; or (b) no
later than November 30, 2022 if the acquired company generates EBITDA of no less than $1.0 million between October 1, 2021 and
September 30, 2022. The acquisition-date fair value
of the contingent consideration was estimated using discounted cash flow models. This fair value measurement was based on
significant inputs not observable in the market and therefore represents a Level 3 measurement. There was no change in the estimated
fair value of the contingent consideration in the period from the acquisition date to April 30, 2021.
The
impact of the acquisition’s purchase price allocations on the Company’s consolidated balance sheet was as follows
(in thousands):
Schedule of Impact of Acquisition's Purchase Price Allocations on Consolidated Balance Sheet
|
|
|
|
April 30, 2020
|
|
|
Trade accounts receivable
|
|
$
|
656
|
|
|
Prepaid expenses
|
|
|
1,644
|
|
|
Property, plant and equipment
|
|
|
75
|
|
|
Goodwill
|
|
|
2,025
|
|
|
Customer relationships (15-year useful lives)
|
|
|
1,960
|
|
|
Tradenames (20-year useful lives)
|
|
|
440
|
|
|
Deferred income tax assets
|
|
|
197
|
|
|
Other assets
|
|
|
30
|
|
|
Trade accounts payable
|
|
|
(1,306
|
)
|
|
Accrued expenses
|
|
|
(423
|
)
|
|
Other current liabilities
|
|
|
(329
|
)
|
|
Noncontrolling interests
|
|
|
(2,188
|
)
|
|
Net assets excluding cash acquired
|
|
$
|
2,781
|
|
Pursuant to a Put/Call Option
Agreement related to the 5% of the issued shares of the acquired company that the seller did not initially sell to IDTIT (“Option
Shares”), the seller exercised its option and on March 22, 2021, IDTIT purchased the Option Shares for $0.3 million. The purchase
of the Option Shares resulted in a $0.2 million reduction in “Noncontrolling interests” and a $21,000 reduction in “Additional
paid-in capital” in the consolidated balance sheets.
The
goodwill was assigned to the Traditional Communications segment and was attributable primarily to the assembled workforces and the
expected synergies from the business combination. The goodwill is not expected to be deductible for income tax purposes.
The
Company’s pro forma results of operations as if the acquisition occurred on August 1, 2019 were not materially different
from the actual results of operations.
Ringsouth
Europa, S.L.
On
December 11, 2019, the Company’s subsidiary, net2phone, Inc. acquired 100%
of the outstanding shares of Ringsouth Europa,
S.L. (“Ringsouth”), a regional provider of cloud communications services to businesses in Spain. The acquisition date fair
value of the consideration consisted of the following (in thousands):
Schedule of Acquisition Date Fair Value of Consideration
|
|
|
|
December 11, 2019
|
|
|
Cash paid
|
|
$
|
450
|
|
|
Contingent consideration
|
|
|
375
|
|
|
Total fair value of consideration
|
|
$
|
825
|
|
Ringsouth’s
operating results from the date of acquisition, which were not significant, were included in the Company’s consolidated
financial statements. The Company’s pro forma results of operations as if the Ringsouth acquisition occurred on August 1,
2019 were not materially different from the actual results of operations.
Note
10—Other Operating Gain (Expense), Net
The
following table summarizes the other operating gain (expense), net by business segment:
Schedule of Other Operating Gain (Expense), Net
|
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Corporate—Straight Path Communications Inc. class action insurance claims net of
legal fees/(legal fees net of insurance claims)
|
|
$
|
605
|
|
|
$
|
152
|
|
|
$
|
601
|
|
|
$
|
(269
|
)
|
|
net2phone-UCaaS—other, net
|
|
|
—
|
|
|
|
—
|
|
|
|
(100
|
)
|
|
|
(63
|
)
|
|
Fintech—money transfer settlement
|
|
|
45
|
|
|
|
—
|
|
|
|
45
|
|
|
|
—
|
|
|
Traditional Communications—gain from sale of rights under class action lawsuit
|
|
|
—
|
|
|
|
—
|
|
|
|
2,000
|
|
|
|
—
|
|
|
Traditional Communications—net2phone indemnification claim
|
|
|
(55
|
)
|
|
|
(386
|
)
|
|
|
(442
|
)
|
|
|
(920
|
)
|
|
Traditional Communications—Carrier Services settlement
|
|
|
—
|
|
|
|
—
|
|
|
|
(554
|
)
|
|
|
—
|
|
|
Traditional Communications—accrual for non-income related taxes related to a foreign subsidiary
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,150
|
)
|
|
Total other operating gain (expense), net
|
|
$
|
595
|
|
|
$
|
(234
|
)
|
|
$
|
1,550
|
|
|
$
|
(3,402
|
)
|
Straight
Path Communications Inc. Class Action
On
July 31, 2013, the Company completed a pro rata distribution of the common stock of the Company’s subsidiary Straight Path Communications
Inc. (“Straight Path”) to the Company’s stockholders of record as of the close of business on July 25, 2013. As discussed
in Note 14, there is a pending putative class action on behalf of Straight Path’s stockholders and derivative complaint naming
the Company, among others. The Company incurred legal fees of $0.3
million and $1.2
million in the three months ended April 30, 2021
and 2020, respectively, and $2.0
million and $2.5
million in the nine months ended April 30, 2021
and 2020, respectively, related to this action. Also, the Company recorded offsetting gains from insurance claims for this matter of
$0.9
million and $1.4
million in the three months ended April 30, 2021
and 2020, respectively, and $2.6
million and $2.2
million in the nine months ended April 30, 2021
and 2020, respectively.
Gain
from Sale of Rights under Class Action Lawsuit
On
December 21, 2020, the Company received $2.0 million from the sale to a third party of all its rights under the Payment Card Interchange
Fee and Merchant Discount Antitrust Litigation. The lawsuit is about claims that merchants paid excessive fees to accept Visa
and Mastercard cards between January 1, 2004 and January 25, 2019 because Visa and Mastercard, individually, and together with
their respective member banks, violated the antitrust laws.
Indemnification
Claim
In
June 2019, as part of a commercial resolution, the Company indemnified a net2phone cable telephony customer related to patent
infringement claims brought against the customer.
Accrual
for Non-Income Related Taxes
In
the nine months ended April 30, 2020, the Company recorded an accrual for non-income related taxes related to one of its foreign
subsidiaries.
Note
11—Equity
Stock
Repurchases
The
Company has an existing stock repurchase program authorized by its Board of Directors for the repurchase of shares of the Company’s
Class B common stock. The Board of Directors authorized the repurchase of up to 8.0 million shares in the aggregate. In the nine
months ended April 30, 2021, the Company repurchased 463,792 shares of Class B common stock for an aggregate purchase price of
$2.8 million. In the nine months ended April 30, 2020, the Company repurchased 40,763 shares of Class B common stock for an aggregate
purchase price of $0.2 million. At April 30, 2021, 5.8 million shares remained available for repurchase under the stock repurchase
program.
In
the nine months ended April 30, 2021 and 2020, the Company paid $1.3 million and $0.3 million, respectively, to repurchase 109,381
and 37,348 shares, respectively, of the Company’s Class B common stock that were tendered by employees of the Company to
satisfy the employees’ tax withholding obligations in connection with the lapsing of restrictions on awards of deferred
stock units (“DSUs”) and restricted stock. Such shares were repurchased by the Company based on their fair market
value on the trading day immediately prior to the vesting date.
Deferred
Stock Units Equity Incentive Program
The
Company has an existing equity incentive program in the form of DSUs that, upon vesting, will entitle the grantees to receive
shares of the Company’s Class B common stock. On January 5, 2021, the second vesting date under the program, in accordance
with the program and based on elections made by certain grantees, the Company issued 283,838 shares of its Class B common stock
in respect of vested DSUs. Based on those elections, vesting for 19,919 DSUs was delayed until January 5, 2022. At April 30, 2021,
there were 154,169 unvested DSUs outstanding, all of which are eligible to vest (if the conditions therefor are satisfied) on
January 5, 2022.
2015
Stock Option and Incentive Plan
In
the nine months ended April 30, 2021 and 2020, the Company received proceeds from the exercise of stock options of $0.7 million
and $0.3 million, respectively, for which the Company issued 81,041 and 32,551 shares, respectively, of its Class B common stock.
Grant
of Restricted Equity in net2phone 2.0, Inc.
On
December 31, 2020, the previously approved compensatory arrangement with each of Howard S. Jonas and Shmuel Jonas, the Company’s
Chief Executive Officer, was finalized. Howard S. Jonas and Shmuel Jonas each received fifty restricted shares of net2phone 2.0,
Inc. (“net2phone 2.0”) Class B common stock, which represents 5% of the outstanding common stock of net2phone 2.0.
net2phone 2.0 is a new entity that owns and operates the net2phone-UCaaS segment. The restricted shares will vest if: (a) for
any fiscal quarter of net2phone 2.0 between November 1, 2020 and October 31, 2023, net2phone 2.0 records subscription revenue
that is at least $18 million, and (b) as of October 31, 2023, the valuation of net2phone 2.0 is $100 million or more. The restricted
shares will also vest in the event, prior to October 31, 2023, net2phone 2.0 or its assets are sold at an equity valuation and
on a cash-free basis of $100 million or more, regardless of whether the revenue threshold was satisfied prior thereto. The restricted
shares entitle each grantee to proceeds only on a sale, spin-off, initial public offering, or other monetization of net2phone
2.0 and have protection from dilution for the first $15 million invested in the net2phone 2.0 following the grant. The aggregate
estimated fair value on the grant date was $0.2 million, which will be recognized over the vesting period.
401(k) Plan Matching Contribution – Subsequent
Event
On May 27, 2021, the Company
contributed 35,839 newly issued shares of its Class B common stock to the Company’s 401(k) Plan for $1.0 million of matching contributions.
Note
12—Earnings (Loss) Per Share
Basic
earnings per share is computed by dividing net income attributable to all classes of common stockholders of the Company by
the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted
earnings per share is computed in the same manner as basic earnings per share, except that the number of shares is increased
to include restricted stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options
using the treasury stock method, unless the effect of such increase is anti-dilutive.
The
weighted-average number of shares used in the calculation of basic and diluted earnings (loss) per share attributable to the Company’s
common stockholders consists of the following:
Schedule of Weighted-average Number of Shares Used in Calculation of Basic and Diluted Earnings (Loss) Per Share
|
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Basic weighted-average number of shares
|
|
|
25,530
|
|
|
|
26,371
|
|
|
|
25,475
|
|
|
|
26,323
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
295
|
|
|
|
—
|
|
|
|
101
|
|
|
|
—
|
|
|
Non-vested restricted Class B common stock
|
|
|
311
|
|
|
|
135
|
|
|
|
327
|
|
|
|
—
|
|
|
Diluted weighted-average number of shares
|
|
|
26,136
|
|
|
|
26,506
|
|
|
|
25,903
|
|
|
|
26,323
|
|
The
following shares were excluded from the calculation of diluted earnings (loss) per share:
Schedule of Shares Excluded from the Diluted Earnings (Loss) Per Share
|
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Stock options
|
|
|
—
|
|
|
|
1,126
|
|
|
|
713
|
|
|
|
1,126
|
|
|
Non-vested restricted Class B common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
520
|
|
|
Shares excluded from the calculation of diluted earnings per share
|
|
|
—
|
|
|
|
1,126
|
|
|
|
713
|
|
|
|
1,646
|
|
There
were no shares excluded from the calculation of diluted earnings per share in the three months ended April 30, 2021. In the nine months ended April 30, 2021 and in the three months ended April 30, 2020, stock options with an exercise price that was greater
than the average market price of the Company’s stock during the period were excluded from the diluted earnings per share computation.
The diluted loss per share equals basic loss per share in the nine months ended April 30, 2020 because the Company had a net loss and
the impact of the assumed exercise of stock options and the vesting of restricted stock would have been anti-dilutive.
Note
13—Accumulated Other Comprehensive Loss
The
accumulated balances for each classification of other comprehensive (loss) income were as follows:
Schedule of Accumulated Balances for Each Classification of Other Comprehensive (Loss) Income
|
|
|
Unrealized
Gain (Loss) on Available-for-Sale Securities
|
|
|
Foreign
Currency Translation
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
|
|
(in thousands)
|
|
|
Balance, July 31, 2020
|
|
$
|
42
|
|
|
$
|
(7,452
|
)
|
|
$
|
(7,410
|
)
|
|
Other comprehensive loss attributable to IDT Corporation
|
|
|
(163
|
)
|
|
|
(817
|
)
|
|
|
(980
|
)
|
|
Balance, April 30, 2021
|
|
$
|
(121
|
)
|
|
$
|
(8,269
|
)
|
|
$
|
(8,390
|
)
|
Note
14—Commitments and Contingencies
Coronavirus
Disease (COVID-19)
The
Company continues to monitor and respond to the impacts of the COVID-19 pandemic on all aspects of its business, including
its customers, employees, suppliers, vendors, and business partners.
Operationally,
the Company’s employees transitioned to work-from-home during the third quarter of fiscal 2020 and, to a large degree, continue
to work-from-home. Its salespeople and delivery employees continue to serve its independent retailers and channel
partners 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 2021.
Legal
Proceedings
On
January 22, 2019, Jose Rosales filed a putative class action against IDT America, IDT Domestic Telecom and IDT International in
California state court alleging certain violations of employment law. Plaintiff alleges that these companies failed to compensate
members of the putative class in accordance with California law. In August 2019, the Company filed a cross complaint against Rosales
alleging trade secret and other violations. The parties are now seeking court approval of a settlement agreement.
On
April 24, 2018, Sprint Communications Company L.P. filed a patent infringement claim against the Company and certain of its affiliates
in the U.S. District Court for the District of Delaware alleging infringement of U.S. Patent Nos. 6,298,064; 6,330,224; 6,343,084;
6,452,932; 6,463,052; 6,473,429; 6,563,918; 6,633,561; 6,697,340; 6,999,463; 7,286,561; 7,324,534; 7,327,728; 7,505,454; and 7,693,131.
Plaintiff was seeking damages and injunctive relief. On June 28, 2018, Sprint dismissed the complaint without prejudice. The Company
is evaluating the underlying claim, and at this stage, is unable to estimate its potential liability, if any. The Company intends
to vigorously defend any claim of infringement of the listed patents.
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. The parties are engaged in discovery. The trial is currently scheduled for December 2021. The Company intends to vigorously
defend 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.
Sales
Tax Contingency
On
June 21, 2018, the United States Supreme Court rendered a decision in South Dakota v. Wayfair, Inc., holding that a state may
require a remote seller with no physical presence in the state to collect and remit sales tax on goods and services provided to
purchasers in the state, overturning certain existing court precedent. The Company has evaluated its state tax filings with respect
to the Wayfair decision and is in the process of reviewing its remittance practices. It is possible that one or more jurisdictions
may assert that the Company has liability for periods for which it has not collected sales, use or other similar taxes, and if
such an assertion or assertions were successful it could materially and adversely affect the Company’s business, financial
position, and operating results. One or more jurisdictions may change their laws or policies to apply their sales, use or
other similar taxes to the Company’s operations, and if such changes were made it could materially and adversely affect
the Company’s business, financial position, and operating results.
Regulatory
Fees Audit
The
Company’s 2017 FCC Form 499-A, which reports its calendar year 2016 revenue, is currently under audit by the Universal Service
Administrative Company (“USAC”). The Internal Audit Division of USAC issued preliminary audit findings and the Company
has, in accordance with audit procedures, appealed certain of the findings. The Company awaits a final decision by USAC on the
preliminary audit findings. Depending on the findings contained in the final decision, the Company may further appeal to the FCC. Although
a final decision remains pending, the Company has been invoiced $2.9 million and $1.8 million on behalf of the Federal Telecommunications
Relay Services Fund and on behalf of the Universal Service Fund, respectively. The Company does not intend to remit payment for
these fees unless and until a negative decision on its appeal has been issued. In response to the aforementioned preliminary audit
findings, the Company made certain changes to its filing policies and procedures for years that remain potentially under audit.
At April 30, 2021 and July 31, 2020, the Company’s accrued expenses included $41.6 million and $40.8 million, respectively,
for FCC-related regulatory fees for the year covered by the audit, as well as prior and subsequent years.
Purchase
Commitments
At
April 30, 2021, the Company had purchase commitments of $3.4 million primarily for certain equipment and services.
Performance
Bonds
The
Company has performance bonds issued through third parties for the benefit of various states in order to comply with the states’
financial requirements for money remittance licenses and telecommunications resellers. At April 30, 2021, the Company had aggregate
performance bonds of $19.8 million outstanding.
Company
Restricted Cash and Cash Equivalents
The
Company treats unrestricted cash and cash equivalents held by IDT Payment Services, which provides the Company’s international
money transfer services in the United States, as substantially restricted and unavailable for other purposes. At April 30, 2021
and July 31, 2020, “Cash and cash equivalents” in the Company’s consolidated balance sheets included an aggregate
of $15.3 million and $11.0 million, respectively, held by IDT Payment Services that was unavailable for other purposes.
FCC
Investigation of Straight Path Spectrum LLC
On
September 20, 2016, the Company received a letter of inquiry from the Enforcement Bureau of the FCC requesting certain information
and materials related to an investigation of potential violations by Straight Path Spectrum LLC (formerly a subsidiary of the
Company and Straight Path) in connection with licenses to operate on the 28 GHz and 39 GHz bands of the Fixed Microwave Services.
The Company has cooperated with the FCC in this matter and has responded to the letter of inquiry. If the FCC were to pursue separate
action against the Company, the FCC could seek to fine or impose regulatory penalties or civil liability on the Company related
to activities during the period of ownership by the Company.
Note
15—Other Income (Expense), Net
Other
income (expense), net consists of the following:
Schedule
of Other Income (Expense), Net
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Foreign currency transaction (losses)
gains
|
|
$
|
(1,069
|
)
|
|
$
|
(774
|
)
|
|
$
|
396
|
|
|
$
|
175
|
|
|
Equity in the net loss of investee
|
|
|
(528
|
)
|
|
|
—
|
|
|
|
(528
|
)
|
|
|
—
|
|
|
Write-off of tax assets related to prior periods
|
|
|
—
|
|
|
|
(129
|
)
|
|
|
—
|
|
|
|
(742
|
)
|
|
Gain (loss) on investments
|
|
|
5,435
|
|
|
|
(1,226
|
)
|
|
|
5,822
|
|
|
|
(817
|
)
|
|
Other
|
|
|
(23
|
)
|
|
|
(15
|
)
|
|
|
(82
|
)
|
|
|
24
|
|
|
Total other income (expense), net
|
|
$
|
3,815
|
|
|
$
|
(2,144
|
)
|
|
$
|
5,608
|
|
|
$
|
(1,360
|
)
|
Note
16—Income Taxes
In
the three and nine months ended April 30, 2021, the Company released $24.0
million of its valuation allowance on the portion of the deferred income tax assets that it is more likely than not going to
utilize. The Company used the framework of Accounting Standards Codification Income Taxes (Topic 740) to determine whether
the valuation allowance should be maintained or reversed. The Company considered the scheduled expiration of its net operating
losses included in its deferred tax assets, projected future taxable income, and tax planning strategies in its assessment of the
valuation allowance. The primary factors that resulted in the valuation allowance release were the three consecutive years of
profitability in the United States and expected future profitability in both the United States and the United Kingdom that will
utilize a portion of the net operating losses. The Company’s tax planning strategies were not a significant factor in the
analysis.
Note
17—Recently Issued Accounting
Standards Not Yet Adopted
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 is evaluating the impact that the new standard
will have on its consolidated financial statements.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes,
that removes certain exceptions to the general principles in Topic 740, and clarifies and amends existing guidance in Topic
740. The Company will adopt the new standard on August 1, 2021. The Company is evaluating the impact that the new standard will
have on its consolidated financial statements.
In
January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity
Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), that clarifies the interactions between Topic
321, Topic 323, and Topic 815. The amendments in this ASU affect the application of the measurement alternative for certain equity
securities and the equity method of accounting, and guidance for certain forward contracts and purchased options to purchase securities,
that, upon settlement or exercise, would be accounted for under the equity method of accounting. The Company will adopt the new
standard on August 1, 2021. The Company is evaluating the impact that the new standard will have on its consolidated financial
statements.
Note 18— Revolving Credit Facility—Subsequent
Event
The
Company’s subsidiary, IDT Telecom, Inc. (“IDT Telecom”), entered into a credit agreement, dated as of May 17,
2021, with TD Bank, N.A. for a revolving credit facility for up to a maximum principal amount of $25.0
million. IDT Telecom may use the proceeds to finance working capital requirements and for certain closing costs of 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. LIBO rate 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 in May 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. IDT Telecom was in compliance with all of the
covenants as of the date of this Quarterly Report on Form 10-Q.