# IDT Corp: Form 10-Q for the period ended Oct 31, 2023

- Company: [IDT Corp](/companies/idt.md) (CIK 1005731)
- Form: 10-Q
- Filed: 2023-12-11
- Accepted by EDGAR: Dec 11, 2023, 20:43 ET
- Period: 2023-10-31
- Accession: 0001493152-23-044374
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1005731/000149315223044374/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1005731/000149315223044374/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-10-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-08-01 to 2023-10-31 | $301.2m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-08-01 to 2023-10-31 | $206.8m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-08-01 to 2023-10-31 | $94.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-08-01 to 2023-10-31 | $77.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-08-01 to 2023-10-31 | $17.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-08-01 to 2023-10-31 | $3.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-08-01 to 2023-10-31 | $7.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-08-01 to 2023-10-31 | $0.30 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-08-01 to 2023-10-31 | $0.30 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-08-01 to 2023-10-31 | 25,277,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-08-01 to 2023-10-31 | $14.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-08-01 to 2023-10-31 | $4.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2023-08-01 to 2023-10-31 | $2.9m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-10-31 | $121.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-10-31 | $382.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-10-31 | $499.0m | us-gaap:Assets |
| Current liabilities | at 2023-10-31 | $275.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-10-31 | $281.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-10-31 | $200.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 39,430 characters.

The following information should be read in conjunction with the accompanying consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2023, 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, 2023. 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, 2023.

Recently Issued Accounting Standards Not Yet Adopted

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

In June 2022, the FASB issued ASU No. 2022-03, *Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,* that clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU also requires specific disclosures related to equity securities that are subject to contractual sales restrictions. We will adopt the amendments in this ASU prospectively on August 1, 2024. We are evaluating the impact that this ASU will have on our consolidated financial statements.

Results of Operations

We evaluate the performance of our business segments based primarily on income (loss) from operations. Accordingly, the income and expense line items below income (loss) from operations are only included in our discussion of the consolidated results of operations.

As of October 31, 2023, we owned 90.0% of the outstanding shares of our subsidiary, net2phone 2.0, Inc., or net2phone 2.0, which owns and operates the net2phone segment, and 80.0% of the outstanding shares of National Retail Solutions, or NRS, and, on a fully diluted basis assuming all the vesting criteria related to various rights granted have been met and other assumptions, we would own 85.8% of net2phone 2.0 and 77.7% of NRS.

As of August 1, 2023, we include depreciation and amortization in “Direct cost of revenues” and “Selling, general and administrative” expense. Prior to August 1, 2023, depreciation and amortization was a separate caption in the consolidated statements of income. In addition, as of August 1, 2023, we are reporting gross profit and gross margin percentage in our “Results of Operations.” Depreciation and amortization expense of $4.8 million in the three months ended October 31, 2022 was reclassified to conform to the current year’s presentation as follows: $1.0 million was reclassified to “Direct cost of revenues” and $3.8 million was reclassified to “Selling, general and administrative” expense. Depreciation and amortization expense included in our business segments was as follows:

*(in millions)*

| Three Months Ended October 31, 2023 Depreciation and amortization: | National Retail Solutions | Fintech | net2phone | Traditional Communications | Corporate | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Included in “Direct cost of revenues” | $0.5 | $— | $0.6 | $0.2 | $— | $1.3 |
| Included in “Selling, general and administrative expense” | 0.3 | 0.7 | 0.8 | 2.0 | — | 3.8 |
| Three Months Ended October 31, 2022 |  |  |  |  |  |  |
| Depreciation and amortization: |  |  |  |  |  |  |
| Included in “Direct cost of revenues” | $0.3 | $— | $0.5 | $0.2 | $— | $1.0 |
| Included in “Selling, general and administrative expense” | 0.2 | 0.6 | 0.9 | 2.1 | — | 3.8 |

COVID-19

In May 2023, the World Health Organization declared an end to COVID-19 as a public health emergency. As of the date of this Quarterly Report, we continue to monitor the situation. We cannot predict with certainty the potential impact of COVID-19 if it re-invigorates on our results of operations, financial condition, or cash flows.

Explanation of Performance Metrics

Our results of operations discussion include the following performance metrics:

- for 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.

24

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 have not been fully installed by the end of the month. Payment processing accounts are NRS PAY accounts that can generate revenue. It excludes accounts that have been approved but not activated. NRS’ recurring revenue is NRS’ revenue in accordance with U.S. GAAP excluding its revenue from POS terminal sales.

net2phone’s cloud communications offerings are priced on a per-seat basis, with customers paying based on the number of users in their organization. net2phone’s subscription revenue is its revenue in accordance with U.S. GAAP excluding its equipment revenue and revenue generated by a legacy SIP trunking offering in Brazil.

The trends and comparisons between periods for the number of active POS terminals, NRS PAY accounts, seats served, recurring revenue, and subscription revenue are used in the analysis of NRS’ or net2phone’s revenues and direct cost of revenues and are strong indications of the top-line growth and performance of the business.

Minutes of use is a nonfinancial metric that measures aggregate customer usage during a reporting period. Minutes of use is an important factor in BOSS Revolution Calling’s and IDT Global’s revenue recognition since satisfaction of our performance obligation occurs when the customer uses our service. Minutes of use trends and comparisons between periods are used in the analysis of revenues and direct cost of revenues.

Three Months Ended October 31, 2023 Compared to Three Months Ended October 31, 2022

### National Retail Solutions Segment

NRS, which represented 8.0% and 6.0% of our total revenues in the three months ended October 31, 2023 and 2022, respectively, is an operator of a nationwide POS network providing independent retailers with store management software, electronic payment processing, and other ancillary merchant services. NRS’ POS platform provides marketers with digital out-of-home advertising and transaction data.

*(in millions)*

| Revenues: | Three months ended October 31, 2023 | 2022 | Change $/#% |  |
| --- | ---: | ---: | ---: | ---: |
| Recurring | **$22.4** | $17.8 | $4.6 | 24.2% |
| Other | **1.6** | 1.5 | 0.1 | 1.4 |
| Total revenues | **24.0** | 19.3 | 4.7 | 24.2 |
| Direct cost of revenues | **(3.1)** | (2.3) | 0.8 | 35.1 |
| Gross profit | **20.9** | 17.0 | 3.9 | 22.8 |
| Selling, general and administrative | **(15.4)** | (11.8) | 3.6 | 30.9 |
| Income from operations | **$5.5** | $5.2 | $0.3 | 4.4% |
| Gross margin percentage | **87.1%** | 88.1% | (1.0)% |  |

*(in thousands)*

|  | October 31, 2023 | 2022 | Change #% |  |
| --- | ---: | ---: | ---: | ---: |
| Active POS terminals | **27.2** | 20.8 | 6.4 | 31% |
| Payment processing accounts | **17.1** | 11.3 | 5.8 | 51% |

*Revenues.* Revenues increased in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 driven primarily by revenue growth from NRS’ merchant services, as well as the expansion of NRS’ POS network.

*Direct Cost of Revenues*. Direct cost of revenues increased in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 primarily due to the increase in the direct costs of NRS’ POS terminal sales.

*Selling, General and Administrative*. Selling, general and administrative expense increased in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 primarily due to increases in sales commissions and employee compensation. As a percentage of NRS’ revenue, NRS’ selling, general and administrative expense increased to 64.3% from 61.0% in the three months ended October 31, 2023 and 2022, respectively.

### Fintech Segment

Fintech, which represented 8.8% and 6.2% of our total revenues in the three months ended October 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, a variable interest entity, or VIE, that operates money transfer businesses, and IDT Financial Services Limited, or IDT Financial Services, our Gibraltar-based bank.

*(in millions)*

| Revenues: | Three months ended October 31, 2023 | 2022 | Change $/#% |  |
| --- | ---: | ---: | ---: | ---: |
| BOSS Money | **$24.3** | $17.6 | $6.7 | 38.1% |
| Other | **2.3** | 2.3 | — | (0.4) |
| Total revenues | **26.6** | 19.9 | 6.7 | 33.6 |
| Direct cost of revenues | **(11.8)** | (8.3) | 3.5 | 41.2 |
| Gross profit | **14.8** | 11.6 | 3.2 | 28.1 |
| Selling, general and administrative | **(16.2)** | (11.7) | 4.5 | 39.0 |
| Other operating gain | **—** | 1.6 | (1.6) | (100.0) |
| (Loss) income from operations | **$(1.4)** | $1.5 | $(2.9) | (191.5)% |
| Gross margin percentage | **55.9%** | 58.2% | (2.3)% |  |

*Revenues.* Revenues from BOSS Money increased in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 primarily because of increased transaction volume in BOSS Money’s retail and digital channels. BOSS Money continues to benefit from the ongoing expansion of its retail agent network and cross-marketing to BOSS Revolution Calling customers.

*Direct Cost of Revenues*. Direct cost of revenues increased in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 primarily due to an increase BOSS Money’s direct cost of revenues, which reflected the increase in BOSS Money’s revenue.

*Selling, General and Administrative*. Selling, general and administrative expense increased in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 primarily due to increases in debit and credit card processing charges, employee compensation, and bank fees. 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 increased to 61.1% from 58.7% in the three months ended October 31, 2023 and 2022, respectively.

*Other Operating Gain.* In September 2022, we determined that the requirements for a portion of the contingent consideration payments related to the Leaf acquisition would not be met. We recognized a gain of $1.6 million on the write-off of this contingent consideration payment obligation.

### net2phone Segment

The net2phone segment, which represented 6.6% and 5.3% of our total revenues in the three months ended October 31, 2023 and 2022, respectively, is comprised of net2phone’s cloud communications and contact center offerings.

*(in millions)*

| Revenues: | Three months ended October 31, 2023 | 2022 | Change $/#% |  |
| --- | ---: | ---: | ---: | ---: |
| Subscription | **$18.5** | $15.5 | $3.0 | 19.0% |
| Other | **1.4** | 1.4 | — | 1.6 |
| Total revenues | **19.9** | 16.9 | 3.0 | 17.6 |
| Direct cost of revenues | **(3.8)** | (3.3) | 0.5 | 13.8 |
| Gross profit | **16.1** | 13.6 | 2.5 | 18.5 |
| Selling, general and administrative | **(16.1)** | (14.7) | 1.4 | 10.0 |
| Loss from operations | **$—** | $(1.1) | $1.1 | 99.3% |
| Gross margin percentage | **80.9%** | 80.3% | 0.6% |  |

*(in thousands)*

|  | October 31, 2023 | 2022 | Change #% |  |
| --- | ---: | ---: | ---: | ---: |
| Seats served | **364** | 309 | 55 | 18% |

*Revenues.* net2phone’s revenues increased in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 driven primarily by the growth in subscription revenue in the U.S. and Latin American markets, which reflected the increase in seats served at October 31, 2023 compared to October 31, 2022.

*Direct Cost of Revenues*. Direct cost of revenues increased in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 primarily due to the increase in revenues, with the largest increase in the U.S. markets. net2phone’s focus on mid-sized businesses, multi-channel strategies, and localized offerings generated revenue growth that exceeded the increase in direct cost of revenues.

*Selling, General and Administrative*. Selling, general and administrative expense increased in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 primarily due to increases in sales commissions, employee compensation, and consulting expense. As a percentage of net2phone’s revenues, net2phone’s selling, general and administrative expense decreased to 81.0% from 86.5% in the three months ended October 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 expense will remain a significant percentage of net2phone’s revenues for the foreseeable future.

### Traditional Communications Segment

The Traditional Communications segment, which represented 76.6% and 82.5% of our total revenues in the three months ended October 31, 2023 and 2022, respectively, includes IDT Digital Payments, which enables customers to transfer airtime and bundles of airtime, messaging, and data to international and domestic mobile accounts, BOSS Revolution Calling, an international long-distance calling service marketed primarily to immigrant communities in the United States and Canada, and IDT Global, a wholesale provider of international voice and SMS termination and outsourced traffic management solutions to telecoms worldwide. Traditional Communications also includes other small businesses and offerings including early-stage business initiatives and mature businesses in harvest mode.

Traditional Communications’ most significant revenue streams are from IDT Digital Payments, BOSS Revolution Calling, and IDT Global. IDT Digital Payments and BOSS Revolution Calling are sold directly to consumers and through distributors and retailers. We receive payments for BOSS Revolution Calling, traditional calling cards, and IDT Digital Payments prior to providing the services. We recognize the revenue when services are provided to the customer. Traditional Communications’ revenues tend to be somewhat seasonal, with the second fiscal quarter (which contains Christmas and New Year’s Day) and the fourth fiscal quarter (which contains Mother’s Day and Father’s Day) typically showing higher minute volumes.

*(in millions)*

| Revenues: | Three months ended October 31, 2023 | 2022 | Change $/#% |  |
| --- | ---: | ---: | ---: | ---: |
| IDT Digital Payments | $100.0 | $109.0 | $(9.0) | (8.3)% |
| BOSS Revolution Calling | 71.2 | 86.3 | (15.1) | (17.4) |
| IDT Global | 52.0 | 61.6 | (9.6) | (15.5) |
| Other | 7.5 | 8.8 | (1.3) | (14.6) |
| Total revenues | 230.7 | 265.7 | (35.0) | (13.2) |
| Direct cost of revenues | (188.1) | (218.8) | (30.7) | (14.0) |
| Gross profit | 42.6 | 46.9 | (4.3) | (9.3) |
| Selling, general and administrative | (26.7) | (29.5) | (2.8) | (9.9) |
| Severance | (0.5) | (0.1) | 0.4 | 423.5 |
| Income from operations | $15.4 | $17.3 | $(1.9) | (10.8)% |
| Gross margin percentage | 18.4% | 17.7% | 0.7% |  |
| Minutes of use: |  |  |  |  |
| BOSS Revolution Calling | 496 | 626 | (130) | (21)% |
| IDT Global | 1,401 | 1,706 | (305) | (18)% |

*Revenues.* Revenues from IDT Digital Payments decreased in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 primarily from the deterioration of a key international corridor that was particularly impactful to revenues in the wholesale channel.

Revenues and minutes of use from BOSS Revolution Calling decreased in the three months ended October 31, 2023 compared to the similar period in fiscal 2023. BOSS Revolution Calling continues to be impacted by persistent, market-wide trends, including the proliferation of unlimited calling plans offered by wireless carriers and mobile virtual network operators, and the increasing penetration of free and paid over-the-top voice, video conferencing, and messaging services.

Revenues and minutes of use from IDT Global decreased in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 as communications globally continued to transition away from international voice calling. This trend was accelerated by the impact of COVID-19 as business communications shifted from calling to video conferencing and other collaboration platforms. We expect that IDT Global will continue to be adversely impacted by these trends, and minutes of use and revenues will likely continue to decline from quarter-to-quarter, as we seek to maximize economics rather than necessarily sustain minutes of use or revenues.

*Direct Cost of Revenues*. Direct cost of revenues decreased in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 primarily due to the decreases in minutes of use and revenues.

*Selling, General and Administrative*. Selling, general and administrative expense decreased in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 primarily due to decreases in employee compensation, sales commissions, marketing expense, and debit and credit card processing charges. As a percentage of Traditional Communications’ revenue, Traditional Communications’ selling, general and administrative expense increased to 11.5% from 11.1% in the three months ended October 31, 2023 and 2022, respectively.

*Severance Expense.* In the three months ended October 31, 2023 and 2022, Traditional Communications incurred severance expense of $0.5 million and $0.1 million, respectively.

### Corporate

*(in millions)*

|  | Three months ended October 31, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| General and administrative | **$(2.8)** | $(1.9) | $0.9 | 44.3% |
| Other operating gain (expense), net | **0.5** | (0.8) | (1.3) | (161.4) |
| Loss from operations | **$(2.3)** | $(2.7) | $0.4 | 15.2% |

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 October 31, 2023 compared to the similar period in fiscal 2023 primarily because of increases in audit and accounting fees and employee compensation. As a percentage of our consolidated revenues, Corporate general and administrative expense was 0.9% and 0.6% in the three months ended October 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) were named in a class action on behalf of the stockholders of our former subsidiary, Straight Path Communications Inc., or Straight Path. We incurred legal fees of $0.2 million and $2.5 million in the three months ended October 31, 2023 and 2022, respectively, related to this action. Also, we recorded offsetting gains from insurance claims for this matter of $0.7 million and $1.7 million in the three months ended October 31, 2023 and 2022, respectively. On October 3, 2023, the Court of Chancery of the State of Delaware dismissed all claims against us, and found that, contrary to the plaintiffs’ allegations, the class suffered no damages. The plaintiffs will have 30 days from entry of the final order to file an appeal.

### Consolidated

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

*Stock-Based Compensation Expense.* Stock-based compensation expense included in consolidated selling, general and administrative expense was $0.8 million and $0.6 million in the three months ended October 31, 2023 and 2022, respectively. The increase in stock-based compensation expense was primarily due to the grant in fiscal 2023 of deferred stock units, or DSUs, that, upon vesting, will entitle the grantees to receive shares of our Class B common stock. We estimated that the fair value of the DSUs on the date of grants was an aggregate of $5.4 million, which is being recognized on a graded vesting basis over the requisite service periods ending in February 2025. At October 31, 2023, there was $1.6 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 is being recognized over the vesting period. At October 31, 2023, unrecognized compensation cost related to NRS’ non-vested Class B common stock was an aggregate of $2.4 million. The unrecognized compensation cost is expected to be recognized over the remaining vesting period that ends in fiscal 2027.

*(in millions)*

|  | Three months ended October 31, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Income from operations | **$17.2** | $20.2 | $(3.0) | (15.1)% |
| Interest income, net | **0.8** | 0.5 | 0.3 | 65.8 |
| Other expense, net | **(5.6)** | (3.8) | (1.8) | (45.4) |
| Provision for income taxes | **(3.9)** | (4.3) | 0.4 | 9.0 |
| Net income | **8.5** | 12.6 | (4.1) | (32.5) |
| Net income attributable to noncontrolling interests | **(0.8)** | (1.6) | 0.8 | 47.4 |
| Net income attributable to IDT Corporation | **$7.7** | $11.0 | $(3.3) | (30.4)% |

29

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

*(in millions)*

|  | Three months ended October 31, 2023 | 2022 |
| --- | ---: | ---: |
| Foreign currency transaction losses | $(3.5) | $(1.0) |
| Equity in the net loss of investee | (1.0) | (0.7) |
| Losses on investments | (0.9) | (1.9) |
| Other | (0.2) | (0.2) |
| Total | $(5.6) | $(3.8) |

We have an investment in shares of convertible preferred stock of a communications company (the equity method investee, or EMI). As of October 31, 2023 and 2022, our ownership was 33.3% and 26.57%, respectively, of the EMI’s outstanding shares on an as converted basis. We account for this investment using the equity method since we can exercise significant influence over the operating and financial policies of the EMI but do not have a controlling interest. We determined that on the dates of the acquisitions of the EMI’s shares, there were differences between our investment in the EMI and our proportional interest in the equity of the EMI of an aggregate of $8.2 million, which represented the share of the EMI’s customer list on the dates of the acquisitions attributed to our interest in the EMI. These basis differences are being amortized over the 6-year estimated life of the customer list. “Equity in the net loss of investee” includes the amortization of equity method basis difference.

*Provision for Income Taxes.* The change in income tax expense in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 was primarily due to differences in the amount of taxable income earned in the various taxing jurisdictions.

*Net Income Attributable to Noncontrolling Interests*. The change in the net income attributable to noncontrolling interests in the three months ended October 31, 2023 compared to the similar period in fiscal 2023 was primarily due to changes in amounts attributable to the noncontrolling interests in NRS, net2phone 2.0, and the VIE.

Liquidity and Capital Resources

As of the date of this Quarterly Report, we expect our cash flow from operations and the balance of cash, cash equivalents, debt securities, and current equity investments that we held on October 31, 2023 will be sufficient to meet our currently anticipated working capital and capital expenditure requirements during the twelve-month period ending October 31, 2024.

At October 31, 2023, we had cash, cash equivalents, debt securities, and current equity investments of $159.7 million and working capital (current assets in excess of current liabilities) of $106.2 million.

We treat unrestricted cash and cash equivalents held by IDT Payment Services, Inc. and IDT Payment Services of New York, LLC as substantially restricted and unavailable for other purposes. At October 31, 2023, “Cash and cash equivalents” in our consolidated balance sheet included an aggregate of $35.1 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 October 31, 2023:

| Payments Due by Period (in millions) | Total | Less than 1 year | 1–3 years | 4–5 years | After 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Purchase commitments | $18.6 | $18.6 | $— | $— | $— |
| Connectivity obligations under service agreements | 0.7 | 0.6 | 0.1 | — | — |
| Operating leases including short-term leases | 6.5 | 3.7 | 2.6 | 0.2 | — |
| Total (1) | $25.8 | $22.9 | $2.7 | $0.2 | $— |

(1) The above table does not include up to $10 million for the potential redemption of shares of NRS’ Class B common stock, an aggregate of $29.0 million in performance bonds, and up to $8.8 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.

30

### Consolidated Financial Condition

*(in millions)*

| Cash flows provided by (used in): | Three months ended October 31, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | **$14.8** | $18.2 |
| Investing activities | **4.3** | 4.2 |
| Financing activities | **(2.6)** | (7.1) |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents | **(6.9)** | (6.1) |
| **Increase in cash, cash equivalents, and restricted cash and cash equivalents** | **$9.6** | $9.2 |

### Operating Activities

Our cash flow from operations varies significantly from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable.

Gross trade accounts receivable increased to $41.2 million at October 31, 2023 from $37.7 million at July 31, 2023 primarily due to amounts billed in the three months ended October 31, 2023 that were greater than collections 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 $34.0 million at October 31, 2023 from $35.3 million at July 31, 2023 primarily due to decreases in the BOSS Revolution Calling and IDT Digital Payments deferred revenue balances.

Customer deposit liabilities at IDT Financial Services decreased to $79.5 million at October 31, 2023 from $86.5 million at July 31, 2023. Our restricted cash and cash equivalents included $80.1 million and $87.3 million at October 31, 2023 and July 31, 2023, respectively, held by the bank.

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

On June 21, 2018, the United States Supreme Court rendered a decision in South Dakota v. Wayfair, Inc., holding that a state may require a remote seller with no physical presence in the state to collect and remit sales tax on goods and services provided to purchasers in the state, overturning certain existing court precedent. It is possible that one or more jurisdictions may assert that we have liability for periods for which we have not collected sales, use or other similar taxes, and if such an assertion or assertions were successful it could materially and adversely affect our business, financial position, and operating results. One or more jurisdictions may change their laws or policies to apply their sales, use or other similar taxes to our operations, and if such changes were made it could materially and adversely affect our business, financial position, and operating results.

As discussed in Note 16 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report, we (as well as other defendants) were named in a class action on behalf of the stockholders of our former subsidiary, Straight Path. On October 3, 2023, the Court of Chancery of the State of Delaware dismissed all claims against us, and found that, contrary to the plaintiffs’ allegations, the class suffered no damages. The plaintiffs will have 30 days from entry of the final order to file an appeal.

### Investing Activities

Our capital expenditures were $4.3 million and $5.2 million in the three months ended October 31, 2023 and 2022, respectively. We currently anticipate that total capital expenditures in the twelve-month period ending October 31, 2024 will be $21 million to $23 million. We expect to fund our capital expenditures with our net cash provided by operating activities and cash, cash equivalents, debt securities, and current equity investments on hand.

As of July 27, 2023, the EMI’s shareholders including us agreed to purchase additional shares of the EMI’s convertible preferred stock. We subscribed to purchase additional shares for an aggregate of $1.0 million. In the three months ended October 31, 2023, we paid $0.7 million to purchase a portion of the shares.

Purchases of debt securities and equity investments were $7.8 million and $2.1 million in the three months ended October 31, 2023 and 2022, respectively. Proceeds from maturities and sales of debt securities and redemptions of equity investments were $17.1 million and $11.5 million in the three months ended October 31, 2023 and 2022, respectively.

### Financing Activities

We distributed cash of $0.1 million in both the three months ended October 31, 2023 and 2022 to the noncontrolling interests in certain of our subsidiaries.

In the three months ended October 31, 2023 and 2022, we received proceeds from financing-related other liabilities of $0.1 million and $0.3 million, respectively.

In the three months ended October 31, 2023 and 2022, we repaid financing-related other liabilities of $15,000 and $1.9 million, respectively.

Our subsidiary, IDT Telecom, Inc., or IDT Telecom, entered into a credit agreement, dated as of May 17, 2021, with TD Bank, N.A. for a revolving credit facility for up to a maximum principal amount of $25.0 million. As of July 28, 2023, IDT Telecom and TD Bank, N.A. amended certain terms of the credit agreement. IDT Telecom may use the proceeds to finance working capital requirements and for certain closing costs of the facility. At October 31, 2023 and July 31, 2023, there were no amounts outstanding under this facility. In the three months ended October 31, 2023 and 2022, IDT Telecom borrowed and repaid an aggregate of $30.3 million and nil, respectively, under the facility. The revolving credit facility is secured by primarily all of IDT Telecom’s assets. The principal outstanding bears interest per annum at the secured overnight financing rate published by the Federal Reserve Bank of New York plus 10 basis points, plus depending upon IDT Telecom’s leverage ratio as computed for the most recent fiscal quarter, 125 to 175 basis points. Interest is payable monthly, and all outstanding principal and any accrued and unpaid interest is due on May 16, 2026. IDT Telecom pays a quarterly unused commitment fee on the average daily balance of the unused portion of the $25.0 million commitment of 30 to 85 basis points, depending upon IDT Telecom’s leverage ratio as computed for the most recent fiscal quarter. IDT Telecom is required to comply with various affirmative and negative covenants as well as maintain certain targets based on financial ratios during the term of the revolving credit facility. As of October 31, 2023, IDT Telecom was in compliance with all of the covenants.

In the three months ended October 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 three months ended October 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 three months ended October 31, 2023, we repurchased 125,470 shares of Class B common stock for an aggregate purchase price of $2.8 million. In the three months ended October 31, 2022, we repurchased 203,436 shares of Class B common stock for an aggregate purchase price of $5.0 million. At October 31, 2023, 4.6 million shares remained available for repurchase under the stock repurchase program.

In the three months ended October 31, 2023 and 2022, we paid $15,000 and $0.3 million, respectively, to repurchase 654 and 13,403 shares, respectively, of our Class B common stock that were tendered by employees of ours to satisfy the employees’ tax withholding obligations in connection with the vesting of DSUs, the lapsing of restrictions on restricted stock, and shares issued for bonus payments. Such shares were repurchased by us based on their fair market value as of the close of business on the trading day immediately prior to the vesting date.

### Other Sources and Uses of Resources

We are considering spin-offs and other potential dispositions of certain of our subsidiaries. Some of the transactions under consideration are in early stages and others are more advanced. A spin-off may include the contribution of a significant amount of cash, cash equivalents, debt securities, and/or equity securities to the subsidiary prior to the spin-off, which would reduce our capital resources. There is no assurance that any of these transactions will be completed.

We intend to, where appropriate, make strategic investments and acquisitions to complement, expand, and/or enter into new businesses. In considering acquisitions and investments, we search for opportunities to profitably grow our existing businesses and/or to add qualitatively to the range and diversification of businesses in our portfolio. We cannot guarantee that we will be presented with acquisition opportunities that meet our return-on-investment criteria, or that our efforts to make acquisitions that meet our criteria will be successful.

## Market risk

As filed, 1,686 characters.

### Foreign Currency Risk

Revenues from our international operations were 26% and 28% of our consolidated revenues in the three months ended October 31, 2023 and 2022, respectively. A significant portion of our revenues is in currencies other than the U.S. Dollar. Our foreign currency exchange risk is somewhat mitigated by our ability to offset a portion of these non-U.S. Dollar-denominated revenues with operating expenses that are paid in the same currencies. While the impact from fluctuations in foreign exchange rates affects our revenues and expenses denominated in foreign currencies, the net amount of our exposure to foreign currency exchange rate changes at the end of each reporting period is generally not material.

### Investment Risk

We hold a portion of our assets in debt and equity securities, including hedge funds, for strategic and speculative purposes. At October 31, 2023 and July 31, 2023, the value of our debt and equity security holdings was an aggregate of $46.2 million and $58.5 million, respectively, which represented 9% and 11% of our total assets at October 31, 2023 and July 31, 2023, respectively. Investments in debt and equity securities carry a degree of risk and depend to a great extent on correct assessments of the future course of price movements of securities and other instruments. There can be no assurance that our investment managers will be able to accurately predict these price movements. The securities markets have in recent years been characterized by great volatility and unpredictability. Accordingly, the value of our investments may go down as well as up and we may not receive the amounts originally invested upon redemption.

## Controls and procedures

As filed, 837 characters.

*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 October 31, 2023.

*Changes in Internal Control over Financial Reporting.* There were no changes in our internal control over financial reporting during the fiscal quarter ended October 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 168 characters.

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, 2023.

Filed Dec 11, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-044374. Last ingested by Listed: Oct 24, 2026, 15:02 ET. No prices; not investment advice.