|
Item 1.
|
Financial Statements (Unaudited)
|
IDT
CORPORATION
CONSOLIDATED
BALANCE SHEETS
|
|
April 30,
2019
|
|
|
July 31,
2018
|
|
|
|
(Unaudited)
|
|
|
(Note 1)
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
79,326
|
|
|
$
|
73,981
|
|
Restricted cash and cash equivalents
|
|
|
162,848
|
|
|
|
129,216
|
|
Debt securities
|
|
|
301
|
|
|
|
5,612
|
|
Trade accounts receivable, net of allowance for doubtful accounts of $4,851 at April 30, 2019 and $5,358 at July 31, 2018
|
|
|
54,366
|
|
|
|
70,746
|
|
Prepaid expenses
|
|
|
22,856
|
|
|
|
20,566
|
|
Other current assets
|
|
|
26,706
|
|
|
|
28,760
|
|
Total current assets
|
|
|
346,403
|
|
|
|
328,881
|
|
Property, plant and equipment, net
|
|
|
35,025
|
|
|
|
36,080
|
|
Goodwill
|
|
|
11,223
|
|
|
|
11,315
|
|
Other intangibles, net
|
|
|
4,212
|
|
|
|
496
|
|
Equity investments
|
|
|
8,350
|
|
|
|
6,633
|
|
Deferred income tax assets, net
|
|
|
2,825
|
|
|
|
5,668
|
|
Other assets
|
|
|
11,860
|
|
|
|
10,524
|
|
Total assets
|
|
$
|
419,898
|
|
|
$
|
399,597
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
38,256
|
|
|
$
|
45,900
|
|
Accrued expenses
|
|
|
115,308
|
|
|
|
130,225
|
|
Deferred revenue
|
|
|
40,681
|
|
|
|
55,015
|
|
Customer deposits
|
|
|
160,833
|
|
|
|
127,571
|
|
Other current liabilities
|
|
|
7,230
|
|
|
|
8,273
|
|
Total current liabilities
|
|
|
362,308
|
|
|
|
366,984
|
|
Other liabilities
|
|
|
1,163
|
|
|
|
1,310
|
|
Total liabilities
|
|
|
363,471
|
|
|
|
368,294
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
IDT Corporation stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; authorized shares—10,000; no shares issued
|
|
|
—
|
|
|
|
—
|
|
Class A common stock, $.01 par value; authorized shares—35,000; 3,272 shares issued and 1,574 shares outstanding at April 30, 2019 and July 31, 2018
|
|
|
33
|
|
|
|
33
|
|
Class B common stock, $.01 par value; authorized shares—200,000; 25,613 and 25,594 shares issued and 24,705 and 22,872 shares outstanding at April 30, 2019 and July 31, 2018, respectively
|
|
|
256
|
|
|
|
256
|
|
Additional paid-in capital
|
|
|
272,291
|
|
|
|
294,047
|
|
Treasury stock, at cost, consisting of 1,698 and 1,698 shares of Class A common stock and 908 and 2,722 shares of Class B common stock at April 30, 2019 and July 31, 2018, respectively
|
|
|
(51,739
|
)
|
|
|
(85,597
|
)
|
Accumulated other comprehensive loss
|
|
|
(4,465
|
)
|
|
|
(4,972
|
)
|
Accumulated deficit
|
|
|
(160,289
|
)
|
|
|
(173,103
|
)
|
Total IDT Corporation stockholders’ equity
|
|
|
56,087
|
|
|
|
30,664
|
|
Noncontrolling interests
|
|
|
340
|
|
|
|
639
|
|
Total equity
|
|
|
56,427
|
|
|
|
31,303
|
|
Total liabilities and equity
|
|
$
|
419,898
|
|
|
$
|
399,597
|
|
See
accompanying notes to consolidated financial statements.
IDT
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands, except per share data)
|
|
Revenues
|
|
$
|
341,255
|
|
|
$
|
365,410
|
|
|
$
|
1,053,044
|
|
|
$
|
1,154,848
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost of revenues (exclusive of depreciation and amortization)
|
|
|
282,791
|
|
|
|
307,165
|
|
|
|
878,661
|
|
|
|
980,903
|
|
Selling, general and administrative (i)
|
|
|
49,518
|
|
|
|
50,136
|
|
|
|
150,970
|
|
|
|
152,565
|
|
Depreciation and amortization
|
|
|
5,524
|
|
|
|
5,799
|
|
|
|
16,881
|
|
|
|
17,207
|
|
Severance
|
|
|
553
|
|
|
|
3,658
|
|
|
|
553
|
|
|
|
4,293
|
|
Total costs and expenses
|
|
|
338,386
|
|
|
|
366,758
|
|
|
|
1,047,065
|
|
|
|
1,154,968
|
|
Other operating expense, net
|
|
|
(120
|
)
|
|
|
(345
|
)
|
|
|
(405
|
)
|
|
|
(1,970
|
)
|
Income (loss) from operations
|
|
|
2,749
|
|
|
|
(1,693
|
)
|
|
|
5,574
|
|
|
|
(2,090
|
)
|
Interest income, net
|
|
|
177
|
|
|
|
204
|
|
|
|
472
|
|
|
|
853
|
|
Other income (expense), net
|
|
|
360
|
|
|
|
(712
|
)
|
|
|
(494
|
)
|
|
|
(1,168
|
)
|
Income (loss) before income taxes
|
|
|
3,286
|
|
|
|
(2,201
|
)
|
|
|
5,552
|
|
|
|
(2,405
|
)
|
Benefit from (provision for) income taxes
|
|
|
871
|
|
|
|
(1,029
|
)
|
|
|
(2,054
|
)
|
|
|
(931
|
)
|
Net income (loss)
|
|
|
4,157
|
|
|
|
(3,230
|
)
|
|
|
3,498
|
|
|
|
(3,336
|
)
|
Net income attributable to noncontrolling interests
|
|
|
(287
|
)
|
|
|
(228
|
)
|
|
|
(888
|
)
|
|
|
(698
|
)
|
Net income (loss) attributable to IDT Corporation
|
|
$
|
3,870
|
|
|
$
|
(3,458
|
)
|
|
$
|
2,610
|
|
|
$
|
(4,034
|
)
|
Earnings (loss) per share attributable to IDT Corporation common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.15
|
|
|
$
|
(0.14
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.16
|
)
|
Diluted
|
|
$
|
0.15
|
|
|
$
|
(0.14
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.16
|
)
|
Weighted-average number of shares used in calculation of earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
26,263
|
|
|
|
24,675
|
|
|
|
24,970
|
|
|
|
24,649
|
|
Diluted
|
|
|
26,263
|
|
|
|
24,675
|
|
|
|
24,972
|
|
|
|
24,649
|
|
(i) Stock-based compensation included in selling, general and administrative expenses
|
|
$
|
332
|
|
|
$
|
1,045
|
|
|
$
|
1,212
|
|
|
$
|
2,842
|
|
See
accompanying notes to consolidated financial statements.
IDT
CORPORATION
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Net income (loss)
|
|
$
|
4,157
|
|
|
$
|
(3,230
|
)
|
|
$
|
3,498
|
|
|
$
|
(3,336
|
)
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized loss on available-for-sale securities
|
|
|
—
|
|
|
|
28
|
|
|
|
1
|
|
|
|
(122
|
)
|
Foreign currency translation adjustments
|
|
|
(10
|
)
|
|
|
176
|
|
|
|
473
|
|
|
|
138
|
|
Other comprehensive (loss) income
|
|
|
(10
|
)
|
|
|
204
|
|
|
|
474
|
|
|
|
16
|
|
Comprehensive income (loss)
|
|
|
4,147
|
|
|
|
(3,026
|
)
|
|
|
3,972
|
|
|
|
(3,320
|
)
|
Comprehensive income attributable to noncontrolling interests
|
|
|
(287
|
)
|
|
|
(228
|
)
|
|
|
(888
|
)
|
|
|
(698
|
)
|
Comprehensive income (loss) attributable to IDT Corporation
|
|
$
|
3,860
|
|
|
$
|
(3,254
|
)
|
|
$
|
3,084
|
|
|
$
|
(4,018
|
)
|
See
accompanying notes to consolidated financial statements.
IDT
CORPORATION
CONSOLIDATED
STATEMENTS OF EQUITY
(Unaudited)
|
|
Three Months Ended April 30, 2019
(in
thousands)
|
|
|
|
IDT Corporation Stockholders
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
|
Class B
Common Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Treasury
Stock
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Accumulated
Deficit
|
|
|
Noncontrolling
Interests
|
|
|
Total
Equity
|
|
BALANCE AT
JANUARY 31, 2019(see Note 2)
|
|
$
|
33
|
|
|
$
|
256
|
|
|
$
|
271,959
|
|
|
$
|
(51,727
|
)
|
|
$
|
(4,455
|
)
|
|
$
|
(164,159
|
)
|
|
$
|
503
|
|
|
$
|
52,410
|
|
Restricted Class B common stock purchased from employees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
332
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
332
|
|
Distributions to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(450
|
)
|
|
|
(450
|
)
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(10
|
)
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,870
|
|
|
|
287
|
|
|
|
4,157
|
|
BALANCE AT APRIL 30, 2019
|
|
$
|
33
|
|
|
$
|
256
|
|
|
$
|
272,291
|
|
|
$
|
(51,739
|
)
|
|
$
|
(4,465
|
)
|
|
$
|
(160,289
|
)
|
|
$
|
340
|
|
|
$
|
56,427
|
|
|
|
Nine Months Ended April 30, 2019
(in
thousands)
|
|
|
|
IDT Corporation Stockholders
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
|
Class B
Common Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Treasury
Stock
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Accumulated
Deficit
|
|
|
Noncontrolling
Interests
|
|
|
Total
Equity
|
|
BALANCE AT JULY 31, 2018
|
|
$
|
33
|
|
|
$
|
256
|
|
|
$
|
294,047
|
|
|
$
|
(85,597
|
)
|
|
$
|
(4,972
|
)
|
|
$
|
(173,103
|
)
|
|
$
|
639
|
|
|
$
|
31,303
|
|
Adjustment from the adoption of change in revenue recognition (see Note 2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,064
|
|
|
|
—
|
|
|
|
9,064
|
|
Adjustment from the adoption of change in accounting for equity investments (see Note 8)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33
|
|
|
|
1,140
|
|
|
|
—
|
|
|
|
1,173
|
|
BALANCE AT
AUGUST 1, 2018
|
|
|
33
|
|
|
|
256
|
|
|
|
294,047
|
|
|
|
(85,597
|
)
|
|
|
(4,939
|
)
|
|
|
(162,899
|
)
|
|
|
639
|
|
|
|
41,540
|
|
Repurchases of Class B common stock through repurchase program
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,854
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,854
|
)
|
Sale of Class B common stock to Howard S. Jonas
|
|
|
—
|
|
|
|
—
|
|
|
|
(22,968
|
)
|
|
|
37,740
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,772
|
|
Restricted Class B common stock purchased from employees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(28
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(28
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,212
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,212
|
|
Distributions to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,187
|
)
|
|
|
(1,187
|
)
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
474
|
|
|
|
—
|
|
|
|
—
|
|
|
|
474
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,610
|
|
|
|
888
|
|
|
|
3,498
|
|
BALANCE AT APRIL 30, 2019
|
|
$
|
33
|
|
|
$
|
256
|
|
|
$
|
272,291
|
|
|
$
|
(51,739
|
)
|
|
$
|
(4,465
|
)
|
|
$
|
(160,289
|
)
|
|
$
|
340
|
|
|
$
|
56,427
|
|
IDT
CORPORATION
CONSOLIDATED
STATEMENTS OF EQUITY
(Unaudited)—Continued
|
|
Three Months Ended April 30, 2018
(in
thousands)
|
|
|
|
IDT Corporation Stockholders
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
|
Class B
Common Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Treasury
Stock
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Accumulated
Deficit
|
|
|
Noncontrolling
Interests
|
|
|
Total
Equity
|
|
BALANCE AT
JANUARY 31, 2018
|
|
$
|
33
|
|
|
$
|
256
|
|
|
$
|
396,259
|
|
|
$
|
(83,365
|
)
|
|
$
|
(2,531
|
)
|
|
$
|
(173,386
|
)
|
|
$
|
9,094
|
|
|
$
|
146,360
|
|
Dividends declared ($0.09 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,237
|
)
|
|
|
—
|
|
|
|
(2,237
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,045
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,045
|
|
Distributions to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(306
|
)
|
|
|
(306
|
)
|
Rafael Spin-Off
|
|
|
—
|
|
|
|
—
|
|
|
|
(103,996
|
)
|
|
|
—
|
|
|
|
(2,270
|
)
|
|
|
—
|
|
|
|
(8,653
|
)
|
|
|
(114,919
|
)
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
204
|
|
|
|
—
|
|
|
|
—
|
|
|
|
204
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,458
|
)
|
|
|
228
|
|
|
|
(3,230
|
)
|
BALANCE AT APRIL 30, 2018
|
|
$
|
33
|
|
|
$
|
256
|
|
|
$
|
293,308
|
|
|
$
|
(83,365
|
)
|
|
$
|
(4,597
|
)
|
|
$
|
(179,081
|
)
|
|
$
|
363
|
|
|
$
|
26,917
|
|
|
|
Nine Months Ended April 30, 2018
(in
thousands)
|
|
|
|
IDT Corporation Stockholders
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
|
Class B
Common Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Treasury
Stock
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Accumulated
Deficit
|
|
|
Noncontrolling
Interests
|
|
|
Total
Equity
|
|
BALANCE AT JULY 31, 2017
|
|
$
|
33
|
|
|
$
|
256
|
|
|
$
|
394,462
|
|
|
$
|
(83,304
|
)
|
|
$
|
(2,343
|
)
|
|
$
|
(163,370
|
)
|
|
$
|
8,823
|
|
|
$
|
154,557
|
|
Dividends declared ($0.47 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,677
|
)
|
|
|
—
|
|
|
|
(11,677
|
)
|
Restricted Class B common stock purchased from employees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(61
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(61
|
)
|
Transfer of right to receive equity to Howard S. Jonas
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(40
|
)
|
|
|
(40
|
)
|
Consolidation of Lipomedix Pharmaceuticals Ltd.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
558
|
|
|
|
558
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
2,842
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,842
|
|
Distributions to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,023
|
)
|
|
|
(1,023
|
)
|
Rafael Spin-Off
|
|
|
—
|
|
|
|
—
|
|
|
|
(103,996
|
)
|
|
|
—
|
|
|
|
(2,270
|
)
|
|
|
—
|
|
|
|
(8,653
|
)
|
|
|
(114,919
|
)
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,034
|
)
|
|
|
698
|
|
|
|
(3,336
|
)
|
BALANCE AT APRIL 30, 2018
|
|
$
|
33
|
|
|
$
|
256
|
|
|
$
|
293,308
|
|
|
$
|
(83,365
|
)
|
|
$
|
(4,597
|
)
|
|
$
|
(179,081
|
)
|
|
$
|
363
|
|
|
$
|
26,917
|
|
See
accompanying notes to consolidated financial statements.
IDT
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine Months Ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Operating activities
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,498
|
|
|
$
|
(3,336
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
16,881
|
|
|
|
17,207
|
|
Deferred income taxes
|
|
|
2,049
|
|
|
|
4,524
|
|
Provision for doubtful accounts receivable
|
|
|
1,218
|
|
|
|
1,120
|
|
Stock-based compensation
|
|
|
1,212
|
|
|
|
2,842
|
|
Other
|
|
|
(700
|
)
|
|
|
5
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
14,045
|
|
|
|
2,943
|
|
Prepaid expenses, other current assets and other assets
|
|
|
213
|
|
|
|
(13,436
|
)
|
Trade accounts payable, accrued expenses, other current liabilities and other liabilities
|
|
|
(18,432
|
)
|
|
|
(21,075
|
)
|
Customer deposits at IDT Financial Services Limited, our Gibraltar-based bank
|
|
|
33,086
|
|
|
|
18,468
|
|
Deferred revenue
|
|
|
(5,716
|
)
|
|
|
(8,138
|
)
|
Net cash provided by operating activities
|
|
|
47,354
|
|
|
|
1,124
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(13,724
|
)
|
|
|
(15,969
|
)
|
Payment for acquisition, net of cash acquired
|
|
|
(5,526
|
)
|
|
|
—
|
|
Proceeds from redemption of investments
|
|
|
1,000
|
|
|
|
—
|
|
Cash used for purchase of investments
|
|
|
(1,000
|
)
|
|
|
—
|
|
Proceeds from sale of interest in Straight Path IP Group Holding, Inc.
|
|
|
—
|
|
|
|
6,000
|
|
Purchase of IP Interest from Straight Path Communications Inc.
|
|
|
—
|
|
|
|
(6,000
|
)
|
Purchases of marketable securities
|
|
|
(7
|
)
|
|
|
(22,208
|
)
|
Proceeds from maturities and sales of marketable securities
|
|
|
5,312
|
|
|
|
36,655
|
|
Net cash used in investing activities
|
|
|
(13,945
|
)
|
|
|
(1,522
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
—
|
|
|
|
(11,677
|
)
|
Cash of Rafael deconsolidated as a result of spin-off
|
|
|
—
|
|
|
|
(9,287
|
)
|
Distributions to noncontrolling interests
|
|
|
(1,187
|
)
|
|
|
(1,023
|
)
|
Proceeds from sale of Class B common stock to Howard S. Jonas
|
|
|
13,272
|
|
|
|
—
|
|
Repayment of other liabilities acquired.
|
|
|
(635
|
)
|
|
|
—
|
|
Proceeds from borrowings under revolving credit facility
|
|
|
3,000
|
|
|
|
22,125
|
|
Repayments of borrowings under revolving credit facility
|
|
|
(3,000
|
)
|
|
|
(22,125
|
)
|
Repurchases of Class B common stock
|
|
|
(3,882
|
)
|
|
|
(61
|
)
|
Net cash provided by (used in) financing activities
|
|
|
7,568
|
|
|
|
(22,048
|
)
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents
|
|
|
(2,000
|
)
|
|
|
5,472
|
|
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents
|
|
|
38,977
|
|
|
|
(16,974
|
)
|
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period
|
|
|
203,197
|
|
|
|
211,963
|
|
Cash, cash equivalents, and restricted cash and cash equivalents at end of period
|
|
$
|
242,174
|
|
|
$
|
194,989
|
|
Supplemental schedule of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Howard S. Jonas’ advance payment used for sale of Class B common stock
|
|
$
|
1,500
|
|
|
$
|
—
|
|
Net assets excluding cash and cash equivalents of Rafael deconsolidated as a result of spin-off
|
|
$
|
—
|
|
|
$
|
(105,632
|
)
|
See
accompanying notes to consolidated financial statements.
IDT
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1—Basis of Presentation
The accompanying unaudited consolidated
financial statements of IDT Corporation and its subsidiaries (the “Company” or “IDT”) have been prepared
in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim
financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes 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, 2019 are not necessarily indicative of the results that may be expected
for the fiscal year ending July 31, 2019. The balance sheet at July 31, 2018 has been derived from the Company’s audited
consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP
for complete financial statements. For further information, please refer to the consolidated financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2018, as filed with the U.S. Securities
and Exchange Commission (“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 2019 refers to the fiscal year ending July 31, 2019).
Note
2—Revenue Recognition
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2014-09,
Revenue from Contracts with Customers (Topic 606)
, and has since issued amendments thereto (collectively referred
to as “ASC 606”). The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services, and the guidance defines a five-step process to achieve this core principle. The five-step
process to achieve this principle is as follows: (i) identify the contract(s) with a customer, (ii) identify the performance
obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance
obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. ASC
606 also mandates additional disclosure about the nature, amount, timing and uncertainty of revenues and cash flows arising from
customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain
or fulfill a contract.
The
Company applied ASC 606 only to those contracts that were not completed as of August 1, 2018. Results for the reporting periods
beginning after August 1, 2018 are presented under ASC 606, while prior period results are not adjusted and continue to be reported
in accordance with historic accounting under ASC Topic 605.
Modified
Retrospective Method of Adoption and Cumulative Effect Adjustment
The
Company adopted ASC 606 as of August 1, 2018, using the modified retrospective method. As this method requires that the cumulative
effect of initially applying ASC 606 be recognized at the date of adoption, at August 1, 2018, the Company recorded an $8.6 million
reduction to “Deferred revenue”, with an offsetting reduction to “Accumulated deficit”, for the cumulative
effect of the adoption. This adjustment related to the change in accounting for breakage primarily from the Company’s Boss
Revolution international calling service, traditional calling cards, and international and domestic mobile top-up. A customer’s
nonrefundable prepayment gives the customer a right to receive a good or service in the future (and obliges the Company to stand
ready to transfer that good or service). However, customers may not exercise all of their contractual rights to receive that good
or service. Those unexercised rights are referred to as breakage. Prior to the adoption of ASC 606, the Company recorded breakage
revenue when the likelihood of the customer exercising its remaining rights became remote. The Company generally deemed the likelihood
remote after 12 or 24 months of no activity (depending on the revenue stream). Per ASC 606, if an entity expects to be entitled
to a breakage amount, the entity should recognize the expected breakage amount as revenue in proportion to the pattern of rights
exercised by the customer, but only to the extent that it is probable that a significant reversal in the amount of cumulative
revenue recognized will not occur when the uncertainty associated with the breakage is subsequently resolved. The Company determined
that $8.6 million included in its opening balance of “Deferred revenue” would have been recognized as breakage revenue
under ASC 606 in prior periods, and accordingly, recorded the cumulative effect adjustment as of August 1, 2018.
Corrected
Cumulative Effect Adjustment
In the third quarter of fiscal 2019,
the Company corrected the income tax effect on the foreign portion of its cumulative effect adjustment from the adoption of ASC
606 described above. Accordingly, the Company corrected its cumulative effect adjustment as of August 1, 2018 and recorded a decrease
in “Deferred income tax assets” and an offsetting increase to “Accumulated deficit” of $0.8 million.
ASC
606 changed the accounting for costs to obtain and fulfill contracts with customers such that incremental costs of obtaining and
direct costs of fulfilling contracts with customers are deferred and amortized consistent with the transfer of the related good
or service. In the second quarter of fiscal 2019, the Company determined that the cumulative effect of initially applying ASC
606 to defer these costs related to its net2phone-UCaaS business was $1.3 million. Accordingly, the Company corrected its cumulative
effect adjustment as of August 1, 2018 and recorded an increase in “Other current assets” of $0.6 million and an increase
in “Other assets” of $0.7 million, with an offsetting reduction to “Accumulated deficit” of $1.3 million.
Breakage
Revenue: Methods, Inputs and Assumptions
The
Company’s inputs for recording breakage revenue was its aging of the deferred revenue balance for its Boss Revolution international
calling service, traditional calling cards, international and domestic mobile top-up, and other revenue streams with deferred
revenue balances. Upon the adoption of ASC 606, the Company’s method changed to an estimate of expected breakage revenue
by revenue stream recorded each month, based on inputs and assumptions about usage of the deferred revenue balances. The Company
used its historical deferred revenue usage data by revenue stream to calculate the percentage of deferred revenue by month that
will become breakage. The historical data indicated that customers utilize a very high percentage of minutes purchased in the
first three months. The Company reviews its estimates quarterly based on updated data and adjusts the monthly estimates accordingly.
Contracts
with Customers
The
Company earns revenue from contracts with customers, primarily through the provision of retail telecommunications and payment
offerings as well as wholesale international long-distance traffic termination. The Company has two reportable business segments,
Telecom & Payment Services and net2phone (formerly net2phone-Unified Communications as a Service (“UCaaS”)). The
Telecom & Payment Services segment markets and distributes the following communications and payment services: (1) retail communications,
which includes international long-distance calling products primarily to foreign-born communities, with its core markets in the
United States; (2) wholesale carrier services terminating international long distance calls around the world for Tier 1 fixed
line and mobile network operators, as well as other service providers; and (3) payment services, such as international and domestic
mobile top-up, domestic bill payment and international money transfer, and National Retail Solutions, the Company’s merchant
services offerings through point-of-sale terminals. The net2phone segment is comprised of (1) cloud-based communications services
offered to enterprise customers mainly through value-added resellers, service providers, telecom agents and managed service providers,
(2) Session Initiation Protocol (“SIP”) trunking, which supports inbound and outbound domestic and international calling
from an IP PBX, and (3) cable telephony.
The
Company’s most significant revenue streams are from its Boss Revolution international calling service, international and
domestic mobile top-up, and wholesale termination provided by its Carrier Services business. The Boss Revolution international
calling service and international and domestic mobile top-up are sold direct-to-consumers and through distributors and retailers.
Boss
Revolution international calling service direct-to-consumers
Boss
Revolution international calling service direct-to-consumers is offered on a pay-as-you-go basis or in unlimited plans. The customer
prepays for service in both cases, which results in a contract liability (deferred revenue). The contract term for pay-as-you-go
plans is minute-to-minute that includes separate performance obligations for the series of material rights to renew the contract.
The performance obligation is satisfied immediately after it arises, and the amount of consideration is known when the obligation
is satisfied. Since the Company’s satisfaction of its performance obligation and the customer’s use of the service
occur simultaneously, the Company recognizes revenue at the point in time when minutes are utilized, since the customer obtained
control and the Company has a present right to payment. For unlimited plans, the Company has a stand ready obligation to provide
service over time for an agreed upon term. Unlimited plans include fixed consideration over the term. Plan fees for unlimited
plans are generally refundable up to three days after payment if there was no usage. Since the Company’s satisfaction of
its performance obligation and the customer’s use of the service occur over the term, the Company recognizes revenue over
a period of time as the service is rendered. The Company uses an output method as time elapses because it reflects the pattern
by which the Company satisfies its performance obligation through the transfer of service to the customer. The fixed upfront consideration
is recognized evenly over the service period, which is generally 24 hours, 7 days, or one month.
Boss
Revolution international calling service sold through distributors and retailers
Boss
Revolution international calling service sold through distributors and retailers is the same service as Boss Revolution international
calling service direct-to-consumers. The Company sells capacity to international calling minutes to retailers, or to distributors
who resell to retailers. The retailer or distributor is the Company’s customer in these transactions. The Company’s
sales price to retailers and distributors is less than the end user rate for Boss Revolution international calling service minutes.
The customer or the Company may terminate their agreement at any time upon thirty days written notice without penalty. Retailers
may sell the Boss Revolution international calling service on a pay-as-you-go basis or in unlimited plans. As described above,
for pay-as-you-go, the Company recognizes revenue at the point in time when minutes are utilized, and for unlimited plans, the
Company recognizes revenue over a period of time as the service is rendered. Retailers and distributors also receive renewal commissions
when certain end users subsequently purchase minutes directly from the Company. Renewal commission payments are accounted for
as a reduction of the transaction price over time as the end user uses the service.
International
and domestic mobile top-up
International
and domestic mobile top-up is sold direct-to-consumers and through distributors and retailers in the same manner as the Boss Revolution
international calling service. The Company does not terminate the minutes in its mobile top-up transactions. The Company’s
performance obligation is to recharge (top-up) the airtime balance of a mobile account on behalf of the Company’s customer.
The Company has contracts with various mobile operators or aggregators to provide the mobile top-up service. The Company determined
that it is the principal in primarily all its mobile top-up transactions as the Company controls the service to top-up a mobile
account on behalf of the Company’s customer. However, for a portion of its domestic mobile top-up business where the Company
has no customer service responsibilities, no inventory risk, and does not establish the price, the Company determined that, as
the Company is not considered to control the arrangement, it acts as an agent of the mobile operators. The Company records gross
revenues based on the amount billed to the customer when it is the principal in the arrangement and records revenue net of the
associated costs incurred when it acts as an agent in the arrangement. The performance obligation is satisfied, and revenue is
recognized when the recharge of the mobile account occurs. Accordingly, transfer of control happens at the point in time that
the airtime is recharged, which is when the Company has a right to payment and the customer has accepted the service.
Carrier
Services
Carrier Services are offered to both
postpaid and prepaid customers. Postpaid customers are billed in arrears and typically consist of credit-worthy companies such
as Tier 1 carriers and mobile network operators. Prepaid customers are typically smaller communications companies and independent
call aggregators. There is no performance obligation until the transport and termination of international long-distance calls
commences. The initial contract durations range from six months to one year with successive extensions. During the initial term,
the contract can only be terminated in certain instances (such as bankruptcy of either party, damage to the other party’s
network, fraud, or breach of contract). However, no penalties are applied if the agreement is terminated in the initial term.
After the initial term has expired, either party may terminate the agreement with notice of 30 days to 60 days depending on the
agreement. The term of the contract is essentially minute-to-minute as there is no penalty for an early termination and no obligation
to send traffic.
Each
iteration is a separate optional purchase that is occurring over the contract duration (that is, minute-by-minute). The satisfaction
of the performance obligation is occurring at a point in time (as the minutes are transferred) because the provision of the service
and the satisfaction of the performance obligation are essentially occurring simultaneously. Revenue is recognized at the point
in time upon delivery of the service.
The
Company has not generally entered into contracts that have retroactive pricing features. Additionally, as the performance obligations
are considered minute-by-minute obligations in the original contract, any modification of the original contract that leads to
a conclusion that there is a new contract would not result in any adjustment related to the original contract’s consideration.
The
Company provides discounts to its larger customers based on the expectation of a significant volume of minutes that are consistent
with that class of customer in the wholesale carrier market. The discounts do not provide a material right to the customer because
the customer receives the same pricing for all usage under the contract.
Carrier Services’ contracts may
include tiered pricing based on minute volumes. The Company determined that its retroactive tiered pricing should be accounted
for as variable consideration because the final transaction price is unknown until the customer completes or fails to complete
the specified threshold. Currently, contracts with retroactive tiered pricing are not material. The Company estimates the amount
of variable consideration to include in the transaction price only to the extent that it is probable that a subsequent change
in the estimate would not result in a significant revenue reversal.
The
Company enters into Notification of Reciprocal Transmission (“NORT”) transactions, in which the Company commits to
purchase a specific number of wholesale carrier minutes to other specific destinations at specified rates, and the counterparty
commits to purchase from the Company a specific number of minutes to specific destinations at specified rates. The number of minutes
purchased and sold is not necessarily the same. The rates in these reciprocal transactions are generally not at prevailing market
rates, and the amounts paid to the counterparty in excess of market rates are reflected as a reduction in revenue received from
the customer. The initial terms of NORT contracts generally range from one month to six months. Since the arrangements include
the promise of minimum guaranteed amounts of traffic, the performance obligation represents a stand ready obligation to provide
the specified number of minutes over the contractual term. Since the Company’s satisfaction of its performance obligation
of routing calls to their destination includes a minimum guaranteed amount of traffic, the Company recognizes revenue over a period
of time as the service is rendered. The customer simultaneously receives and consumes the benefits provided by the Company’s
performance as the Company performs. The Company uses an output method as the usage of minutes occur because it reflects the pattern
by which the Company satisfies its performance obligation through the transfer of service to the customer.
Disaggregated
Revenues
The
Company’s core operations are mostly minute-based, paid-voice communications services, and revenue is primarily recognized
at a point in time. The Company’s Telecom & Payment Services’ growth initiatives and net2phone-UCaaS are technology-driven,
synergistic businesses that leverage the core assets, and revenue in some cases is recognized over time.
The
following table shows the Company’s revenues disaggregated by business segment and service offered to customers:
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Core Operations:
|
|
|
|
Boss Revolution Calling
|
|
$
|
120,455
|
|
|
$
|
129,649
|
|
|
$
|
366,114
|
|
|
$
|
393,454
|
|
Carrier Services
|
|
|
120,955
|
|
|
|
142,525
|
|
|
|
391,073
|
|
|
|
482,159
|
|
Mobile Top-Up
|
|
|
67,567
|
|
|
|
62,530
|
|
|
|
197,189
|
|
|
|
186,144
|
|
Other
|
|
|
12,202
|
|
|
|
15,954
|
|
|
|
43,730
|
|
|
|
51,464
|
|
Growth
|
|
|
7,659
|
|
|
|
5,704
|
|
|
|
20,531
|
|
|
|
15,289
|
|
Total Telecom & Payment Services
|
|
|
328,838
|
|
|
|
356,362
|
|
|
|
1,018,637
|
|
|
|
1,128,510
|
|
net2phone-UCaaS
|
|
|
6,651
|
|
|
|
3,704
|
|
|
|
17,483
|
|
|
|
9,334
|
|
net2phone-Platform Services
|
|
|
5,766
|
|
|
|
5,382
|
|
|
|
16,924
|
|
|
|
15,838
|
|
Total net2phone
|
|
|
12,417
|
|
|
|
9,086
|
|
|
|
34,407
|
|
|
|
25,172
|
|
All Other
|
|
|
—
|
|
|
|
(38
|
)
|
|
|
—
|
|
|
|
1,166
|
|
Total
|
|
$
|
341,255
|
|
|
$
|
365,410
|
|
|
$
|
1,053,044
|
|
|
$
|
1,154,848
|
|
The
following tables show the Company’s revenues disaggregated by geographic region, which is determined based on selling location:
(in thousands)
|
|
Telecom &
Payment
Services
|
|
|
net2phone
|
|
|
All Other
|
|
|
Total
|
|
Three Months Ended April 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
215,686
|
|
|
$
|
8,833
|
|
|
$
|
—
|
|
|
$
|
224,519
|
|
Outside the United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
46,577
|
|
|
|
3
|
|
|
|
—
|
|
|
|
46,580
|
|
Netherlands
|
|
|
48,817
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48,817
|
|
Other
|
|
|
17,758
|
|
|
|
3,581
|
|
|
|
—
|
|
|
|
21,339
|
|
Total outside the United States
|
|
|
113,152
|
|
|
|
3,584
|
|
|
|
—
|
|
|
|
116,736
|
|
Total
|
|
$
|
328,838
|
|
|
$
|
12,417
|
|
|
$
|
—
|
|
|
$
|
341,255
|
|
(in thousands)
|
|
Telecom &
Payment
Services
|
|
|
net2phone
|
|
|
All Other
|
|
|
Total
|
|
Three Months Ended April 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
237,914
|
|
|
$
|
7,060
|
|
|
$
|
(38)
|
|
|
$
|
244,936
|
|
Outside the United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
49,474
|
|
|
|
1
|
|
|
|
—
|
|
|
|
49,475
|
|
Netherlands
|
|
|
47,757
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47,757
|
|
Other
|
|
|
21,217
|
|
|
|
2,025
|
|
|
|
—
|
|
|
|
23,242
|
|
Total outside the United States
|
|
|
118,448
|
|
|
|
2,026
|
|
|
|
—
|
|
|
|
120,474
|
|
Total
|
|
$
|
356,362
|
|
|
$
|
9,086
|
|
|
$
|
(38)
|
|
|
$
|
365,410
|
|
(in thousands)
|
|
Telecom &
Payment
Services
|
|
|
net2phone
|
|
|
All Other
|
|
|
Total
|
|
Nine Months Ended April 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
669,282
|
|
|
$
|
24,857
|
|
|
$
|
—
|
|
|
$
|
694,139
|
|
Outside the United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
150,044
|
|
|
|
19
|
|
|
|
—
|
|
|
|
150,063
|
|
Netherlands
|
|
|
147,796
|
|
|
|
—
|
|
|
|
—
|
|
|
|
147,796
|
|
Other
|
|
|
51,515
|
|
|
|
9,531
|
|
|
|
—
|
|
|
|
61,046
|
|
Total outside the United States
|
|
|
349,355
|
|
|
|
9,550
|
|
|
|
—
|
|
|
|
358,905
|
|
Total
|
|
$
|
1,018,637
|
|
|
$
|
34,407
|
|
|
$
|
—
|
|
|
$
|
1,053,044
|
|
(in thousands)
|
|
Telecom &
Payment
Services
|
|
|
net2phone
|
|
|
All Other
|
|
|
Total
|
|
Nine Months Ended April 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
760,183
|
|
|
$
|
19,503
|
|
|
$
|
1,166
|
$
|
|
|
780,852
|
|
Outside the United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
164,787
|
|
|
|
1
|
|
|
|
—
|
|
|
|
164,788
|
|
Netherlands
|
|
|
144,618
|
|
|
|
—
|
|
|
|
—
|
|
|
|
144,618
|
|
Other
|
|
|
58,922
|
|
|
|
5,668
|
|
|
|
—
|
|
|
|
64,590
|
|
Total outside the United States
|
|
|
368,327
|
|
|
|
5,669
|
|
|
|
—
|
|
|
|
373,996
|
|
Total
|
|
$
|
1,128,510
|
|
|
$
|
25,172
|
|
|
$
|
1,166
|
|
|
$
|
1,154,848
|
|
Remaining
Performance Obligations
The
Company’s revenue is generally recognized in the same period that its performance obligations are satisfied. The Company
does not have any significant revenue from performance obligations satisfied or partially satisfied in previous reporting periods,
or transaction price to be allocated to performance obligations that are unsatisfied (or partially unsatisfied) at the end of
a reporting period.
Accounts
Receivable and Contract Balances
The
timing of revenue recognition may differ from the time of billing to our customers. Trade accounts receivable in our 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 the payments received for its prepaid
Boss Revolution international calling service, traditional calling cards, and international and domestic mobile top-up services.
Contract liabilities are recognized as revenue when services are provided to the customer. The contract liability balances are
presented in our consolidated balance sheet as “Deferred revenue”.
The
following table presents information about the Company’s contract liability balance:
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
2019
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Revenue recognized in the period from amounts included in the contract liability balance at the beginning of the period
|
|
$
|
25,639
|
|
|
$
|
35,138
|
|
Deferred
Customer Contract Acquisition and Fulfillment Costs
ASC
606 changed the accounting for costs to obtain and fulfill contracts with customers such that incremental costs of obtaining and
direct costs of fulfilling contracts with customers are deferred and amortized consistent with the transfer of the related good
or service. The Company’s incremental costs of obtaining a customer contract are sales commissions paid to acquire customers.
For Telecom & Payment Services, 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 life of the contract with the customer when the contract is expected
to exceed one year.
Note
3—Cash, Cash Equivalents, and Restricted Cash and Cash Equivalents
On
August 1, 2018, the Company adopted ASU No. 2016-18,
Statement of Cash Flows (Topic 230)
, related to the classification
and presentation of changes in restricted cash in the statement of cash flows. The following table provides a reconciliation of
cash, cash equivalents, and restricted cash and cash equivalents reported in the consolidated balance sheet that equals the total
of the same amounts reported in the consolidated statement of cash flows:
|
|
April 30,
2019
|
|
|
July 31,
2018
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
79,326
|
|
|
$
|
73,981
|
|
Restricted cash and cash equivalents
|
|
|
162,848
|
|
|
|
129,216
|
|
Total cash, cash equivalents, and restricted cash and cash equivalents
|
|
$
|
242,174
|
|
|
$
|
203,197
|
|
At
April 30, 2019 and July 31, 2018, restricted cash and cash equivalents included $162.5 million and $128.9 million, respectively,
in cash and cash equivalents held by IDT Financial Services Limited, the Company’s Gibraltar-based bank.
Note 4—IDT Financial Services
Holding Limited Previously Recorded as Held for Sale
On June 22, 2017, the Company’s
wholly-owned subsidiary IDT Telecom, Inc. (“IDT Telecom”) entered into a Share Purchase Agreement (the “Agreement”)
with JAR Fintech Limited (“JAR Fintech”) and JAR Capital Limited to sell the capital stock of IDT Financial Services
Holding Limited, a company incorporated under the laws of Gibraltar and a wholly-owned subsidiary of IDT Telecom (“IDTFS
Holding”), to JAR Fintech. IDTFS Holding is the sole shareholder of IDT Financial Services Limited, a Gibraltar-based bank
and e-money issuer, providing prepaid card solutions across the European Economic Area. The sale was subject to regulatory approval
and other conditions. The proposed sale of IDTFS Holding did not meet the criteria to be reported as a discontinued operation
and accordingly, its results of operations and cash flows were not reclassified. Beginning in the fourth quarter of fiscal 2017,
IDTFS Holding’s assets and liabilities were classified as held for sale in the consolidated balance sheet.
On October 25, 2018, JAR Fintech notified
the Company that it considers the Agreement terminated by the effluxion of time, however the parties had indicated that they remained
interested in consummating a transaction regarding the sale of IDTFS Holding, pending, among other things, greater clarity regarding
the timing of Brexit and its effect on IDTFS Holding. In April 2019, Brexit (the withdrawal of the U.K. from the EU) was postponed
and is currently scheduled to take effect on October 31, 2019 with the possibility of leaving earlier if support for a withdrawal
agreement is secured in the House of Common. The pending nature of Brexit necessitated negotiation of further changes to the terms
of the sale. As a result of the continued uncertainty pertaining to Brexit, the significant passage of time since the termination
of the Agreement, and absence of any formal binding agreement with the buyer, as of April 30, 2019, the Company determined that
the sale was no longer probable to close within twelve months, and as a result, IDTFS Holding was reclassified as held and used
in the consolidated balance sheet for all periods presented. There was no impact on the Company’s results of operations,
cash flows, and segments.
Note
5—Acquisition of Versature Corp.
On September 14, 2018, the Company acquired
100% of the outstanding shares of Versature Corp., a UCaaS provider serving the Canadian market, for cash of $5.9 million. The
acquisition expanded the Company’s UCaaS business into Canada. Versature’s operating results from the date of acquisition,
which were not significant, are included in the Company’s consolidated financial statements.
The
impact of the acquisition’s purchase price allocations on the Company’s consolidated balance sheet and the acquisition
date fair value of the total consideration transferred were as follows (in thousands):
Trade accounts receivable
|
|
$
|
370
|
|
Prepaid expenses
|
|
|
65
|
|
Property, plant and equipment
|
|
|
1,826
|
|
Non-compete agreement
|
|
|
600
|
|
Customer relationships
|
|
|
3,003
|
|
Tradename
|
|
|
490
|
|
Other assets
|
|
|
486
|
|
Trade accounts payable
|
|
|
(81
|
)
|
Accrued expenses
|
|
|
(523
|
)
|
Other liabilities
|
|
|
(710
|
)
|
Net assets excluding cash acquired
|
|
$
|
5,526
|
|
Supplemental information:
|
|
|
|
|
Cash paid
|
|
$
|
5,943
|
|
Cash acquired
|
|
|
(417
|
)
|
Total consideration, net of cash acquired
|
|
$
|
5,526
|
|
The
following table presents unaudited pro forma information of the Company as if the acquisition occurred on August 1, 2017:
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
341,255
|
|
|
$
|
367,088
|
|
|
$
|
1,053,928
|
|
|
$
|
1,159,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,157
|
|
|
$
|
(3,236
|
)
|
|
$
|
3,289
|
|
|
$
|
(3,555
|
)
|
Note
6—Rafael Holdings, Inc. Spin-Off
On
March 26, 2018, the Company completed a pro rata distribution of the common stock that the Company held in the Company’s
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”). The disposition of Rafael did not meet the criteria to be reported as a
discontinued operation and accordingly, Rafael’s assets, liabilities, results of operations and cash flows have not been
reclassified. At the time of the Rafael Spin-Off, Rafael owned the commercial real estate assets and interests in two clinical
stage pharmaceutical companies that were previously held by the Company. The commercial real estate holdings consisted of the
Company’s headquarters building and its associated public garage in Newark, New Jersey, an office/data center building in
Piscataway, New Jersey and a portion of a building in Israel that hosts offices for the Company and certain affiliates. The pharmaceutical
holdings included debt interests and warrants in Rafael Pharmaceuticals, Inc., which is a clinical stage, oncology-focused pharmaceutical
company committed to the development and commercialization of therapies that exploit the metabolic differences between normal
cells and cancer cells, and a majority equity interest in Lipomedix Pharmaceuticals Ltd., a pharmaceutical development company
based in Israel.
Rafael’s
loss before income taxes and loss before income taxes attributable to the Company, which was included in the accompanying consolidated
statements of operations, were as follows:
|
|
Three
Months Ended
April 30,
|
|
|
Nine
Months Ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in
thousands)
|
|
Loss
before income taxes
|
|
$
|
—
|
|
|
$
|
(1,190
|
)
|
|
$
|
—
|
|
|
$
|
(2,410
|
)
|
Loss
before income taxes attributable to IDT Corporation
|
|
$
|
—
|
|
|
$
|
(1,062
|
)
|
|
$
|
—
|
|
|
$
|
(2,107
|
)
|
Note
7—Debt Securities
The
following is a summary of marketable debt securities:
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
301
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit*
|
|
$
|
3,032
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,032
|
|
U.S. Treasury notes
|
|
|
1,693
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
1,692
|
|
Municipal bonds
|
|
|
888
|
|
|
|
—
|
|
|
|
—
|
|
|
|
888
|
|
Total
|
|
$
|
5,613
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
5,612
|
|
|
*
|
Each of the
Company’s certificates of deposit had a CUSIP, was purchased in the secondary market through a broker, and may be sold
in the secondary market.
|
Equity
securities with a fair value of $0.4 million at July 31, 2018 were reclassified to “Other current assets” to conform
to the current year presentation (see Note 8).
Proceeds
from maturities and sales of available-for-sale securities were $0.8 million and $5.0 million in the three months ended April
30, 2019 and 2018, respectively, and $5.3 million and $36.7 million in the nine months ended April 30, 2019 and 2018, respectively.
There were no gross realized gains that were included in earnings as a result of sales in the three and nine months ended April
30, 2019 and 2018. There were no gross realized losses that were included in earnings as a result of sales in the three and nine
months ended April 30, 2019. The gross realized losses that were included in earnings as a result of sales were $7,000 and $16,000
in the three and nine months ended April 30, 2018, respectively. The Company uses the specific identification method in computing
the gross realized gains and gross realized losses on the sales of marketable securities.
The
contractual maturities of the Company’s available-for-sale debt securities at April 30, 2019 were as follows:
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
Within one year
|
|
$
|
301
|
|
After one year through five years
|
|
|
—
|
|
After five years through ten years
|
|
|
—
|
|
After ten years
|
|
|
—
|
|
Total
|
|
$
|
301
|
|
The
following available-for-sale debt securities were in an unrealized loss position for which other-than-temporary impairments have
not been recognized:
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
April 30, 2019:
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
July 31, 2018:
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
$
|
1
|
|
|
$
|
1,692
|
|
At
April 30, 2019 and July 31, 2018, there were no securities in a continuous unrealized loss position for 12 months or longer.
Note
8—Equity Investments
On
August 1, 2018, the Company adopted ASU No. 2016-01,
Financial Instruments
—
Overall (Subtopic 825-10)
, that
requires the Company to provide more information about recognition, measurement, presentation and disclosure of financial instruments.
The ASU included, among other changes, the following: (1) equity investments (except those accounted for under the equity method
or that result in consolidation) will be measured at fair value with changes in fair value recognized in net income, (2) a qualitative
assessment each reporting period to identify impairment of equity investments without readily determinable fair values, (3) financial
assets and financial liabilities will be presented separately by measurement category and form of financial asset on the balance
sheet or the notes to the financial statements, and (4) an entity should evaluate the need for a valuation allowance on a deferred
tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. Entities
will no longer recognize unrealized holding gains and losses on equity securities classified as available-for-sale in other comprehensive
income. In addition, a practicability exception is available for equity investments that do not have readily determinable fair
values and do not qualify for the net asset value practical expedient (the “measurement alternative”). These investments
may be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions
for an identical or similar investment of the same issuer. Entities will have to reassess at each reporting period whether an
investment qualifies for this practicability exception. At August 1, 2018, the cumulative effect of adopting this ASU was a $1.2
million increase in “Equity investments”, a $33,000 decrease in “Accumulated other comprehensive loss”
and a $1.1 million decrease in “Accumulated deficit”, primarily from the measurement at fair value of the Company’s
shares of Visa Inc. Series C Convertible Participating Preferred Stock (“Visa Series C Preferred”) and the derecognition
of unrealized holding losses on equity securities classified as available-for-sale.
At April 30, 2019 and July 31, 2018,
the Company owned 42,282 shares of Zedge, Inc. Class B common stock that had a fair value of $0.1 million. In addition, at April
30, 2019 and July 31, 2018, the Company owned 26,821 and 25,803 shares, respectively, of Rafael Class B common stock that had
a fair value of $0.4 million and $0.2 million, respectively. The aggregate fair value of these shares was included in “Other
current assets” in the accompanying consolidated balance sheets. The Company received the Zedge and Rafael shares in connection
with the lapsing of restrictions on Zedge and Rafael restricted stock held by certain of the Company’s employees and the
payment of taxes related thereto.
The
changes in the carrying value of the Company’s equity investments for which the Company elected the measurement alternative
was as follows:
|
|
Three Months Ended April 30, 2019
|
|
|
Nine Months Ended April 30, 2019
|
|
|
|
(in thousands)
|
|
Balance, beginning of period
|
|
$
|
3,045
|
|
|
$
|
1,883
|
|
Adoption of change in accounting for equity investments
|
|
|
—
|
|
|
|
1,213
|
|
Adjusted balance, beginning of period
|
|
|
3,045
|
|
|
|
3,096
|
|
Adjustment for observable transactions involving a similar investment from the same issuer
|
|
|
599
|
|
|
|
550
|
|
Redemptions
|
|
|
—
|
|
|
|
(2
|
)
|
Impairments
|
|
|
—
|
|
|
|
—
|
|
Balance, end of period
|
|
$
|
3,644
|
|
|
$
|
3,644
|
|
In the three and nine months ended April 30, 2019, the Company increased the carrying value of the 1,830
shares of Visa Series C Preferred it held by $0.6 million based on the fair value of Visa Class A common stock and a discount for
lack of current convertibility. Each share of Visa Series C Preferred is convertible into 13.886 shares of Visa Class A common
stock at Visa’s option starting in June 2020 and will be convertible at the holder’s option beginning in June 2028.
Unrealized
gains and losses for all equity investments included the following:
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Net gains recognized during the period on equity investments
|
|
$
|
623
|
|
|
$
|
30
|
|
|
$
|
704
|
|
|
$
|
53
|
|
Less: net gains and losses recognized during the period on equity investments redeemed during the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unrealized gains recognized during the period on equity investments still held at the reporting date
|
|
$
|
623
|
|
|
$
|
30
|
|
|
$
|
704
|
|
|
$
|
53
|
|
Note
9—Fair Value Measurements
In
the first quarter of fiscal 2019, the Company adopted ASU No. 2018-13,
Fair Value Measurement (Topic 820)
, that modifies
the disclosure requirements for fair value measurements. The adoption of this ASU did not impact the fair value measurement disclosures
in the Company’s consolidated financial statements for the three and nine months ended April 30, 2019, however it may impact
the Company’s fair value measurement disclosures in the future.
The
following tables present the 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, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
$
|
—
|
|
|
$
|
301
|
|
|
$
|
—
|
|
|
$
|
301
|
|
Equity securities included in other current assets
|
|
|
523
|
|
|
|
—
|
|
|
|
—
|
|
|
|
523
|
|
Equity securities included in equity investments
|
|
|
—
|
|
|
|
—
|
|
|
|
3,344
|
|
|
|
3,344
|
|
Total
|
|
$
|
523
|
|
|
$
|
301
|
|
|
$
|
3,344
|
|
|
$
|
4,168
|
|
July 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
$
|
1,692
|
|
|
$
|
3,920
|
|
|
$
|
—
|
|
|
$
|
5,612
|
|
Equity securities included in other current assets
|
|
|
360
|
|
|
|
—
|
|
|
|
—
|
|
|
|
360
|
|
Total
|
|
$
|
2,052
|
|
|
$
|
3,920
|
|
|
$
|
—
|
|
|
$
|
5,972
|
|
(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, 2019 and July 31, 2018, the Company did not have any liabilities measured at fair value on a recurring basis.
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). There were no liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) in the three and nine months ended April 30, 2019 and 2018.
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Balance, beginning of period
|
|
$
|
2,745
|
|
|
$
|
6,300
|
|
|
$
|
—
|
|
|
$
|
6,300
|
|
Transfer into Level 3 from adoption of change in accounting for equity investments
|
|
|
—
|
|
|
|
—
|
|
|
|
2,794
|
|
|
|
—
|
|
Rafael Spin-Off
|
|
|
—
|
|
|
|
(6,300
|
)
|
|
|
—
|
|
|
|
(6,300
|
)
|
Total gains recognized in “Other income (expense), net”
|
|
|
599
|
|
|
|
—
|
|
|
|
550
|
|
|
|
—
|
|
Balance, end of period
|
|
$
|
3,344
|
|
|
$
|
—
|
|
|
$
|
3,344
|
|
|
$
|
—
|
|
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the period
|
|
$
|
599
|
|
|
$
|
—
|
|
|
$
|
550
|
|
|
$
|
—
|
|
At
April 30, 2019 and July 31, 2018, the Company had $4.8 million in investments in hedge funds, which were included in “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.
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, 2019 and July 31, 2018, 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, 2019 and July 31, 2018, the carrying amount of these assets and liabilities approximated
fair value. The fair values were estimated based on the Company’s assumptions, which were classified as Level 3 of the fair
value hierarchy.
Note
10—Equity
Sale
of Class B Common Stock to Howard S. Jonas
On
December 21, 2018, the Company sold 2,546,689 shares of its Class B common stock that were held in treasury to Howard S. Jonas,
the Chairman of the Board of the Company, for aggregate consideration of $14.8 million. The price per share of $5.89 was equal
to the closing price of the Company’s Class B common stock on April 16, 2018, the last closing price before approval of
the sale by the Company’s Board of Directors and its Corporate Governance Committee. On May 31, 2018, Mr. Jonas paid $1.5
million of the purchase price, and he paid the balance of the purchase price on December 21, 2018 after approval of the sale by
the Company’s stockholders at the 2018 annual meeting of stockholders. The purchase price was reduced by approximately $0.2
million, which was the amount of dividends paid on 2,546,689 shares of the Company’s Class B common stock whose record date
was between April 16, 2018 and the issuance of the shares.
Deferred
Stock Units Equity Incentive Program
On June 5, 2019, the Compensation Committee
of the Company’s Board of Directors (the “Committee”) approved an equity incentive program in the form of deferred
stock units (“DSUs”) that will be eligible to vest into shares of the Company’s Class B common stock. The Committee
approved a grant for approximately 400,000 DSUs in total, of which 89,500 DSUs were granted to executive officers and the remaining
grants to other eligible employees are still being finalized. The DSUs will vest in three equal amounts on each of January 6,
2020, January 5, 2021, and January 5, 2022. The number of shares that will vest on each vesting date will vary between 50% to
200% of the number of shares that were scheduled to vest on that vesting date, depending on the market price for the underlying
Class B common stock on the vesting date relative to the market price at the time of the grant. In addition, the grantee will
have the right to elect a later vesting date no later than November 29, 2019 for the January 6, 2020 vesting date, and no later
than November 30, 2020 for the January 5, 2021 vesting date. A grantee will have the option to elect a later vesting date for
one-half or all of the shares scheduled to vest on the then upcoming vesting date.
Stock
Repurchases
The
Company has an existing stock repurchase program authorized by its Board of Directors for the repurchase of up to an aggregate
of 8.0 million shares of the Company’s Class B common stock. In the nine months ended April 30, 2019, the Company
repurchased 729,110 shares of Class B common stock for an aggregate purchase price of $3.9 million. There were no repurchases
under the program in the nine months ended April 30, 2018. At April 30, 2019, 6.9 million shares remained available for repurchase
under the stock repurchase program.
In
the nine months ended April 30, 2019 and 2018, the Company paid $28,000 and $0.1 million, respectively, to repurchase 3,748 shares
and 5,170 shares, respectively, of 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 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.
2015
Stock Option and Incentive Plan
On
December 13, 2018, the Company’s stockholders approved an amendment to the Company’s 2015 Stock Option and Incentive
Plan to increase the number of shares of the Company’s Class B common stock available for the grant of awards thereunder
by an additional 0.1 million shares.
Note
11—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:
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Basic weighted-average number of shares
|
|
|
26,263
|
|
|
|
24,675
|
|
|
|
24,970
|
|
|
|
24,649
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Non-vested restricted Class B common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
Diluted weighted-average number of shares
|
|
|
26,263
|
|
|
|
24,675
|
|
|
|
24,972
|
|
|
|
24,649
|
|
The
following shares were excluded from the diluted earnings per share computation:
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Stock options
|
|
|
1,223
|
|
|
|
1,253
|
|
|
|
1,236
|
|
|
|
1,253
|
|
Non-vested restricted Class B common stock
|
|
|
—
|
|
|
|
191
|
|
|
|
—
|
|
|
|
191
|
|
Shares excluded from the calculation of diluted earnings per share
|
|
|
1,223
|
|
|
|
1,444
|
|
|
|
1,236
|
|
|
|
1,444
|
|
In
the three and nine months ended April 30, 2019, 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. In the three
and nine months ended April 30, 2018, the diluted loss per share computation equals basic loss per share 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
12—Revolving Credit Facility
As
of October 31, 2018, IDT Telecom entered into a credit agreement with TD Bank, N.A. for a line of credit facility for up to a
maximum principal amount of $25.0 million. IDT Telecom may use the proceeds to finance working capital requirements, acquisitions
and for other general corporate purposes. The line of credit facility is secured by primarily all of IDT Telecom’s assets.
The principal outstanding bears interest per annum at the LIBOR rate adjusted by the Regulation D maximum reserve requirement
plus 125 basis points. Interest is payable monthly, and all outstanding principal and any accrued and unpaid interest is due on
the maturity date of July 15, 2019. At April 30, 2019, there was no amount outstanding under the facility. IDT Telecom pays a
quarterly unused commitment fee of 0.3% per annum on the average daily balance of the unused portion of the $25.0 million commitment.
IDT Telecom is required to comply with various affirmative and negative covenants as well as maintain certain financial targets
and ratios during the term of the facility, including IDT Telecom may not pay any dividend on its capital stock.
Note
13—Accumulated Other Comprehensive Loss
The
accumulated balances for each classification of other comprehensive loss were as follows:
|
|
Unrealized
Gain (Loss) on Available-for-Sale Securities
|
|
|
Foreign Currency Translation
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
|
(in thousands)
|
|
Balance, July 31, 2018
|
|
$
|
(34
|
)
|
|
$
|
(4,938
|
)
|
|
$
|
(4,972
|
)
|
Adjustment from the adoption of change in accounting for equity investments (see Note 8)
|
|
|
33
|
|
|
|
—
|
|
|
|
33
|
|
Adjusted balance, August 1, 2018
|
|
|
(1
|
)
|
|
|
(4,938
|
)
|
|
|
(4,939
|
)
|
Other comprehensive income attributable to IDT Corporation
|
|
|
1
|
|
|
|
473
|
|
|
|
474
|
|
Balance, April 30, 2019
|
|
$
|
—
|
|
|
$
|
(4,465
|
)
|
|
$
|
(4,465
|
)
|
Note
14—Business Segment Information
The
Company has two reportable business segments, Telecom & Payment Services and net2phone. 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. The Company evaluates the performance of its business segments
based primarily on income (loss) from operations.
Effective at the beginning of fiscal
2019, the Company modified the way it reports its business verticals within its Telecom & Payment Services and net2phone segments
to align more closely with its business strategy and operational structure. The modification to the business verticals did not
change the reportable business segments.
The
Telecom & Payment Services segment provides retail telecommunications and payment offerings as well as wholesale international
long-distance traffic termination. The net2phone segment is comprised of (1) cloud-based communications services offered to enterprise
customers mainly through value-added resellers, service providers, telecom agents and managed service providers, (2) SIP trunking,
which supports inbound and outbound domestic and international calling from an IP PBX, and (3) cable telephony. Depreciation and
amortization are allocated to Telecom & Payment Services and net2phone because the related assets are not tracked separately
by segment. There are no other significant asymmetrical allocations to segments.
Operating
segments not reportable individually are included in All Other, which included the real estate holdings and other investments
that were included in the Rafael Spin-Off.
Corporate
costs include compensation, consulting fees, treasury and accounts payable, tax and accounting services, human resources and payroll,
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.
Beginning
in the third quarter of fiscal 2019, certain expenses that were previously included in the Telecom & Payment Services segment
were reclassified to Corporate. Comparative results have been reclassified and restated for all periods presented.
Operating
results for the business segments of the Company are as follows:
(in thousands)
|
|
Telecom &
Payment
Services
|
|
|
net2phone
|
|
|
All Other
|
|
|
Corporate
|
|
|
Total
|
|
Three Months Ended April 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
328,838
|
|
|
$
|
12,417
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
341,255
|
|
Income (loss) from operations
|
|
|
6,577
|
|
|
|
(1,267
|
)
|
|
|
—
|
|
|
|
(2,561
|
)
|
|
|
2,749
|
|
Severance
|
|
|
553
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
553
|
|
Other operating expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(120
|
)
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
356,362
|
|
|
$
|
9,086
|
|
|
$
|
(38
|
)
|
|
$
|
—
|
|
|
$
|
365,410
|
|
Income (loss) from operations
|
|
|
3,143
|
|
|
|
(769
|
)
|
|
|
(1,138
|
)
|
|
|
(2,929
|
)
|
|
|
(1,693
|
)
|
Severance
|
|
|
3,592
|
|
|
|
—
|
|
|
|
—
|
|
|
|
66
|
|
|
|
3,658
|
|
Other operating expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(345
|
)
|
|
|
(345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended April 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,018,637
|
|
|
$
|
34,407
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,053,044
|
|
Income (loss) from operations
|
|
|
18,121
|
|
|
|
(4,663
|
)
|
|
|
—
|
|
|
|
(7,884
|
)
|
|
|
5,574
|
|
Severance
|
|
|
553
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
553
|
|
Other operating income (expense), net
|
|
|
215
|
|
|
|
25
|
|
|
|
—
|
|
|
|
(645
|
)
|
|
|
(405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended April 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,128,510
|
|
|
$
|
25,172
|
|
|
$
|
1,166
|
|
|
$
|
—
|
|
|
$
|
1,154,848
|
|
Income (loss) from operations
|
|
|
12,105
|
|
|
|
(2,233
|
)
|
|
|
(2,600
|
)
|
|
|
(9,362
|
)
|
|
|
(2,090
|
)
|
Severance
|
|
|
4,197
|
|
|
|
—
|
|
|
|
—
|
|
|
|
96
|
|
|
|
4,293
|
|
Other operating expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,970
|
)
|
|
|
(1,970
|
)
|
Note
15—Commitments and Contingencies
Legal
Proceedings
On April 12, 2019, Scarleth Samara filed
a putative class action against IDT Telecom in the U.S. District Court for the Eastern District of Louisiana alleging certain
violations of the Telephone Consumer Protection Act of 1991. Plaintiff alleges that in October of 2017, IDT Telecom sent unauthorized
marketing messages to her cellphone. The Company is reviewing the factual predicates of the claim. At this stage, the Company
is unable to estimate its potential liability, if any. The Company intends to vigorously defend the claim.
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. The Company is evaluating the claims, and at this stage, is unable to estimate its potential liability, if
any. The Company intends to vigorously defend the claims.
On
May 21, 2018, Erik Dennis filed a putative class action against IDT Telecom and the Company in the U.S. District Court for the
Northern District of Georgia alleging violations of Do Not Call Regulations promulgated by the U.S. Federal Trade Commission.
The Company is evaluating the claim, and at this stage, is unable to estimate its potential liability, if any. On August 13, 2018,
IDT Telecom and the Company filed a motion to dismiss or in the alternative to strike class allegations. The plaintiff opposed
the motion. The motion to dismiss was denied. IDT Telecom and the Company intend to vigorously defend this matter.
On
May 2, 2018, Jean Carlos Sanchez filed a putative class action against IDT Telecom in the U.S. District Court for the Northern
District of Illinois alleging that the Company sent unauthorized marketing messages to cellphones in violation of the Telephone
Consumer Protection Act of 1991. On July 26, 2018, the parties filed a stipulation of dismissal. The Company is evaluating the
claim, and at this stage, is unable to estimate its potential liability, if any. The Company intends to vigorously defend this
matter.
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 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 (the “Straight Path Spin-Off”). 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. Following closing of the transaction, the Delaware Chancery Court denied the motion to dismiss. On February 22, 2019,
the Delaware Supreme Court affirmed the denial of the motion to dismiss. The Company intends to vigorously defend this matter.
In the three months ended April 30, 2019 and 2018, the Company incurred legal fees of $0.1 million and $0.3 million, respectively,
and in the nine months ended April 30, 2019 and 2018, the Company incurred legal fees of $0.6 million and $1.3 million, respectively,
related to this putative class action, which is included in “Other operating expense, net” in the accompanying consolidated
statements of operations. 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.
Regulatory
Fees Audit
The
Company’s 2017 FCC Form 499-A, which reports its calendar year 2016 revenue, related to payments due to the FCC, is currently
under audit by the Internal Audit Division of the Universal Service Administrative Company. At April 30, 2019 and July 31, 2018,
the Company’s accrued expenses included $44.5 million and $43.9 million, respectively, for these regulatory fees for the
year covered by the audit, as well as prior and subsequent years.
Purchase
Commitments
At April 30, 2019, adjusted for the Memorandum
of Understanding (“MOU”) effective June 1, 2019 described below, the Company had purchase commitments of $45.1 million,
including the aggregate commitment of $42.5 million under the telecom services commitments described below.
Telecom Services Commitments
In
August 2017, the Company entered into a Reciprocal Services Agreement with a telecom operator in Central America for a full range
of services, including, but not limited to, termination of inbound and outbound international long-distance voice calls. The Company
has committed to pay such telecom operator monthly committed amounts during the term of the agreement. In addition, under certain
limited circumstances, the parties may renegotiate the amount of the monthly payments. In the event the parties do not agree on
re-pricing terms after good faith negotiations, then either party has the right to terminate the agreement. Pursuant to the agreement,
the Company deposited $9.2 million into an escrow account as security for the benefit of the telecom operator, which is included
in “Other current assets” in the accompanying consolidated balance sheet based on the terms and conditions of the
agreement.
In
May 2019, the Company entered into a MOU with a telecom operator in Central America for among other things, termination of inbound
and outbound international long-distance voice calls. The MOU is effective from June 1, 2019 through December 31, 2019, unless
superseded by the execution of a definitive agreement. The Company has committed to pay such telecom operator monthly committed
amounts during the term of the MOU. The parties intend to draft and execute a definitive agreement as soon as practicable.
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, 2019, the Company had aggregate
performance bonds of $16.1 million outstanding.
Substantially
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, 2019
and July 31, 2018, “Cash and cash equivalents” in the Company’s consolidated balance sheets included an aggregate
of $19.8 million and $10.7 million, respectively, held by IDT Payment Services that was unavailable for other purposes.
Indemnification
Claims
Two
customers of the Company have sought indemnification from the Company related to patent infringement claims brought against those
customers by a third party.
FCC
Investigation of Straight Path Communications Inc.
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 currently a subsidiary of 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
16—Other Income (Expense), Net
Other
income (expense), net consists of the following:
|
|
Three Months Ended
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Foreign currency transaction losses
|
|
$
|
(3
|
)
|
|
$
|
(653
|
)
|
|
$
|
(838
|
)
|
|
$
|
(1,211
|
)
|
Loss on sale of debt securities
|
|
|
—
|
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
(16
|
)
|
Gain (loss) on investments
|
|
|
623
|
|
|
|
(66
|
)
|
|
|
704
|
|
|
|
(7
|
)
|
Other
|
|
|
(260
|
)
|
|
|
14
|
|
|
|
(360
|
)
|
|
|
66
|
|
Total other income (expense), net
|
|
$
|
360
|
|
|
$
|
(712
|
)
|
|
$
|
(494
|
)
|
|
$
|
(1,168
|
)
|
Note
17—The Tax Cuts and Jobs Act
On
December 22, 2017, the U.S. government enacted “An Act to Provide for Reconciliation Pursuant to Titles II and V of the
Concurrent Resolution on the Budget for Fiscal Year 2018”, which is commonly referred to as “The Tax Cuts and Jobs
Act” (the “Tax Act”). The Tax Act reduces the U.S. federal statutory corporate tax rate from 35.0% to 21.0%
effective January 1, 2018, requires companies to pay a one-time repatriation tax on earnings of certain foreign subsidiaries that
were previously tax deferred (“transition tax”), and makes other changes to the U.S. income tax code. Due to the Company’s
July 31 fiscal year-end, the lower corporate income tax rate is phased in, resulting in a blended U.S. federal statutory tax rate
of approximately 26.9% for the Company’s fiscal 2018, and 21.0% for the Company’s fiscal years thereafter.
The
Company has completed its accounting for the income tax effects of the Tax Act. The transition tax is based on total post-1986
earnings and profits which were previously deferred from U.S. income taxes. In fiscal 2018, the Company estimated that it will
utilize $12 million of federal net operating loss carryforwards to offset the transition tax that it expects it will incur. In
fiscal 2019, the Company adjusted this amount to $11 million of federal net operating loss carryforwards usage. These net operating
loss carryforwards have a full valuation allowance and as such there is no impact on the Company’s results of operations.
The
global intangible low taxed income (“GILTI”) and base erosion anti-abuse tax (“BEAT”) became effective
on August 1, 2018. The Company reviewed the proposed guidance that was issued by the Internal Revenue Service in September 2018.
As a result of its fully reserved net operating losses in the United States, the Company concluded there will be no material impact
on its tax provision as a result of GILTI. The Company currently believes there will be no impact from the BEAT.
The
Company anticipates that its assumptions may change as a result of future guidance and interpretation from the Internal Revenue
Service, the SEC, the FASB, and various other taxing jurisdictions, and any additional adjustments will be made at that time.
Note
18—Recently Issued Accounting Standard Not Yet Adopted
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, and has since issued amendments thereto, related to
the accounting for leases (collectively referred to as “ASC 842”). ASC 842 establishes a right-of-use (“ROU”)
model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer
than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense
recognition in the income statement. The Company will adopt ASC 842 on August 1, 2019. A modified retrospective transition approach
is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative
period presented in the financial statements, with certain practical expedients available. Entities have the option to continue
to apply historical accounting under Topic 840, including its disclosure requirements, in comparative periods presented in the
year of adoption. An entity that elects this option will recognize a cumulative effect adjustment to the opening balance of retained
earnings in the period of adoption instead of the earliest period presented. The Company expects to elect to apply the optional
ASC 842 transition provisions beginning on August 1, 2019. Accordingly, the Company will continue to apply Topic 840 prior to
August 1, 2019, including Topic 840 disclosure requirements, in the comparative periods presented. The Company expects to elect
the package of practical expedients for all its leases that commenced before August 1, 2019. The Company is in the process of
evaluating its real estate leases, its connectivity and facility agreements for its servers and routing equipment, and its net2phone-UCaaS
telephone equipment contracts. The Company expects that the adoption of ASC 842 will materially impact its balance sheet and have
an immaterial impact on its results of operations. Based on the Company’s current agreements, the Company expects that upon
the adoption of ASC 842 on August 1, 2019, it will record an operating lease liability of $12.9 million and corresponding ROU
assets based on the present value of the remaining minimum rental payments associated with the Company’s leases. As the
Company’s leases do not provide an implicit rate, nor is one readily available, the Company will use its incremental borrowing
rate based on information available at August 1, 2019 to determine the present value of its future minimum rental payments.
In
June 2016, the FASB issued an ASU 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 “expected 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, 2020. The Company is evaluating the impact
that the new standard will have on its consolidated financial statements.
In
August 2017, the FASB issued an ASU intended to improve the financial reporting of hedging relationships to better portray the
economic results of an entity’s risk management activities in its financial statements. In addition, the ASU includes certain
targeted improvements to simplify the application of hedge accounting guidance in U.S. GAAP. The amendments in this ASU are effective
for the Company on August 1, 2019. Entities will apply the amendments to cash flow and net investment hedge relationships that
exist on the date of adoption using a modified retrospective approach. The presentation and disclosure requirements will be applied
prospectively. The Company does not expect this ASU to impact its consolidated financial statements upon adoption.
In
June 2018, the FASB issued an ASU to simplify several aspects of the accounting for nonemployee share-based payment transactions
by expanding the scope of Topic 718,
Compensation—Stock Compensation
, to include share-based payment transactions
for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards
except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over
which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic
718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a
grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply
to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling
goods or services to customers as part of a contract accounted for under Topic 606,
Revenue from Contracts with Customers
.
The amendments in this ASU are effective for the Company on August 1, 2019. The Company is evaluating the impact that this ASU
will have on its consolidated financial statements.
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
|
The
following information should be read in conjunction with the accompanying consolidated financial statements and the associated
notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management’s
Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year
ended July 31, 2018, 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, and its 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, 2018, and under Item 1A to Part II “Risk Factors” in this Quarterly Report on Form 10-Q. 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 year ended July 31, 2018.
Overview
We
are a multinational company with operations primarily in the telecommunications and payment industries. We have two reportable
business segments, Telecom & Payment Services and net2phone (formerly net2phone-Unified Communications as a Service, or UCaaS).
Our Telecom & Payment Services segment provides retail telecommunications and payment offerings as well as wholesale international
long-distance traffic termination. Our net2phone segment is comprised of (1) cloud-based communications services offered to enterprise
customers mainly through value-added resellers, service providers, telecom agents and managed service providers, (2) Session Initiation
Protocol, or SIP, trunking, which supports inbound and outbound domestic and international calling from an IP PBX, and (3) cable
telephony. Operating segments not reportable individually are included in All Other.
Beginning
in the third quarter of fiscal 2019, certain expenses that were previously included in our Telecom & Payment Services segment
were reclassified to Corporate. Comparative results have been reclassified and restated for all periods presented.
Effective at the beginning of fiscal
2019, we modified the way we report our business verticals within our Telecom & Payment Services and net2phone segments to
align more closely with our business strategy and operational structure. The modification to the business verticals did not change
the reportable business segments.
On
March 26, 2018, we completed a pro rata distribution of the common stock of our former subsidiary, Rafael Holdings, Inc., or Rafael,
to our stockholders of record as of the close of business on March 13, 2018, which we refer to as the Rafael Spin-Off. The disposition
of Rafael did not meet the criteria to be reported as a discontinued operation and accordingly, Rafael’s assets, liabilities,
results of operations and cash flows have not been reclassified. At the time of the Rafael Spin-Off, Rafael owned the commercial
real estate assets and interests in two clinical stage pharmaceutical companies that we previously held. The commercial real estate
holdings consisted of our headquarters building and its associated public garage in Newark, New Jersey, an office/data center
building in Piscataway, New Jersey and a portion of a building in Israel that hosts offices for us and certain affiliates. The
pharmaceutical holdings included debt interests and warrants in Rafael Pharmaceuticals, Inc., which is a clinical stage, oncology-focused
pharmaceutical company committed to the development and commercialization of therapies that exploit the metabolic differences
between normal cells and cancer cells, and a majority equity interest in Lipomedix Pharmaceuticals Ltd., a pharmaceutical development
company based in Israel. In addition, prior to the Rafael Spin-Off, we transferred assets to Rafael such that, at the time of
the Rafael Spin-Off, Rafael had $42.3 million in cash, cash equivalents, and marketable securities, plus approximately $6 million
in hedge fund and other investments.
We
lease office space and parking in Rafael’s building and parking garage located at 520 Broad St, Newark, New Jersey. We also
lease office space in Israel from Rafael. The leases expire in April 2025. In the three and nine months ended April 30, 2019,
we incurred rent expense of $0.5 million and $1.3 million, respectively, in connection with the Rafael leases.
Critical
Accounting Policies
Our
consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted
in the United States of America, or U.S. GAAP. Our significant accounting policies are described in Note 1 to the consolidated
financial statements included in our Annual Report on Form 10-K for fiscal 2018. The preparation of financial statements requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as
well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of
management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change
in subsequent periods. Our critical accounting policies include those related to the allowance for doubtful accounts, goodwill,
valuation of long-lived assets, income taxes and regulatory agency fees, and direct cost of revenues—disputed amounts. Management
bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or conditions. For additional discussion of our critical
accounting policies, see our Management’s Discussion and Analysis of Financial Condition and Results of Operations
in our Annual Report on Form 10-K for fiscal 2018.
Recently
Issued Accounting Standard Not Yet Adopted
In
February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-02,
Leases
(Topic 842)
, and has since issued amendments thereto, related to the accounting for leases (collectively referred to as “ASC
842”). ASC 842establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease
liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or
operating, with classification affecting the pattern of expense recognition in the income statement. We will adopt ASC 842on August
1, 2019. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or
entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical
expedients available. Entities have the option to continue to apply historical accounting under Topic 840, including its disclosure
requirements, in comparative periods presented in the year of adoption. An entity that elects this option will recognize a cumulative
effect adjustment to the opening balance of retained earnings in the period of adoption instead of the earliest period presented.
We expect to elect to apply the optional ASC 842 transition provisions beginning on August 1, 2019. Accordingly, we will continue
to apply Topic 840 prior to August 1, 2019, including Topic 840 disclosure requirements, in the comparative periods presented.
We expect to elect the package of practical expedients for all our leases that commenced before August 1, 2019. We are in the
process of evaluating our real estate leases, our connectivity and facility agreements for our servers and routing equipment,
and our net2phone-UCaaS telephone equipment contracts. We expect that the adoption of ASC 842 will materially impact our balance
sheet and have an immaterial impact on our results of operations. Based on our current agreements, we expect that upon the adoption
of ASC 842 on August 1, 2019, we will record an operating lease liability of $12.9 million and corresponding ROU assets based
on the present value of the remaining minimum rental payments associated with our leases. As our leases do not provide an implicit
rate, nor is one readily available, we will use our incremental borrowing rate based on information available at August 1, 2019
to determine the present value of our future minimum rental payments.
In
June 2016, the FASB issued an ASU 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 “expected loss” model
that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized
losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances
instead of reductions in the amortized cost of the securities. In addition, an entity will have to disclose significantly more
information about allowances, credit quality indicators and past due securities. The new provisions will be applied as a cumulative-effect
adjustment to retained earnings. We will adopt the new standard on August 1, 2020. We are evaluating the impact that the new standard
will have on our consolidated financial statements.
In
August 2017, the FASB issued an ASU intended to improve the financial reporting of hedging relationships to better portray the
economic results of an entity’s risk management activities in its financial statements. In addition, the ASU includes certain
targeted improvements to simplify the application of hedge accounting guidance in U.S. GAAP. The amendments in this ASU are effective
for us on August 1, 2019. Entities will apply the amendments to cash flow and net investment hedge relationships that exist on
the date of adoption using a modified retrospective approach. The presentation and disclosure requirements will be applied prospectively.
We do not expect this ASU to impact our consolidated financial statements upon adoption.
In
June 2018, the FASB issued an ASU to simplify several aspects of the accounting for nonemployee share-based payment transactions
by expanding the scope of Topic 718,
Compensation—Stock Compensation
, to include share-based payment transactions
for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards
except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over
which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic
718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a
grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply
to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling
goods or services to customers as part of a contract accounted for under Topic 606,
Revenue from Contracts with Customers
.
The amendments in this ASU are effective for us on August 1, 2019. We are evaluating the impact that this ASU will have on our
consolidated financial statements.
Results
of Operations
Three
and Nine Months Ended April 30, 2019 Compared to Three and Nine Months Ended April 30, 2018
We
evaluate the performance of our operating 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.
In
May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, and has since issued amendments
thereto (collectively referred to as “ASC 606”). The core principle of ASC 606 is that an entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services, and the guidance defines a five-step process to achieve this core
principle. The five-step process to achieve this principle is as follows: (i) identify the contract(s) with a customer, (ii) identify
the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction
price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance
obligation. ASC 606 also mandates additional disclosure about the nature, amount, timing and uncertainty of revenues and cash
flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs
incurred to obtain or fulfill a contract.
We
applied ASC 606 to those contracts that were not completed as of August 1, 2018. For incomplete contracts that were modified before
August 1, 2018, we elected to use the practical expedient available under the modified retrospective method, which allows us to
aggregate the effect of all modifications when identifying satisfied and unsatisfied performance obligations, determining the
transaction price and allocating transaction price to the satisfied and unsatisfied performance obligations for the modified contract
at transition. Results for the reporting periods beginning after August 1, 2018 are presented under ASC 606, while prior period
results are not adjusted and continue to be reported in accordance with historic accounting under ASC Topic 605.
We
adopted ASC 606 as of August 1, 2018, using the modified retrospective method. As this method requires that the cumulative effect
of initially applying ASC 606 be recognized at the date of adoption, at August 1, 2018, we recorded an $8.6 million reduction
to “Deferred revenue”, with an offsetting reduction to “Accumulated deficit”, for the cumulative effect
of the adoption. This adjustment related to the change in accounting for breakage primarily from our Boss Revolution international
calling service, traditional calling cards, and international and domestic mobile top-up. A customer’s nonrefundable prepayment
gives the customer a right to receive a good or service in the future (and obliges us to stand ready to transfer a good or service).
However, customers may not exercise all of their contractual rights. Those unexercised rights are referred to as breakage. Prior
to the adoption of ASC 606, we recorded breakage revenue when the likelihood of the customer exercising its remaining rights became
remote. We generally deemed the likelihood remote after 12 or 24 months of no activity. Per ASC 606, if an entity expects to be
entitled to a breakage amount, the entity should recognize the expected breakage amount as revenue in proportion to the pattern
of rights exercised by the customer, but only to the extent that it is probable that a significant reversal in the amount of cumulative
revenue recognized will not occur when the uncertainty associated with the breakage is subsequently resolved. We determined that
$8.6 million included in our opening balance of “Deferred revenue” would have been recognized as breakage revenue
under ASC 606 in prior periods, and accordingly, recorded the cumulative effect adjustment as of August 1, 2018.
In the third quarter of fiscal 2019, we
corrected the income tax effect on the foreign portion of our cumulative effect adjustment from the adoption of ASC 606 described
above. Accordingly, we corrected our cumulative effect adjustment as of August 1, 2018 and recorded a decrease in “Deferred
income tax assets” and an offsetting increase to “Accumulated deficit” of $0.8 million.
In
addition, ASC 606 changed the accounting for costs to obtain and fulfill contracts with customers such that incremental costs
of obtaining and direct costs of fulfilling contracts with customers are deferred and amortized consistent with the transfer of
the related good or service. In the second quarter of fiscal 2019, we determined that the cumulative effect of initially applying
ASC 606 to defer these costs related to our net2phone-UCaaS business was $1.3 million. Accordingly, we corrected our cumulative
effect adjustment as of August 1, 2018 and recorded an increase in “Other current assets” of $0.6 million and an increase
in “Other assets” of $0.7 million, with an offsetting reduction to “Accumulated deficit”, of $1.3 million.
Telecom
& Payment Services Segment
Telecom
& Payment Services, which represented 96.4% and 97.5% of our total revenues in the three months ended April 30, 2019 and 2018,
respectively, and 96.7% and 97.7% of our total revenues in the nine months ended April 30, 2019 and 2018, respectively, markets
and distributes the following communications and payment services:
|
●
|
Core includes our three largest communications and payments offerings by revenue: Boss Revolution Calling, an international
long-distance calling service marketed primarily to immigrant communities in the U.S., Carrier Services, which provides international
long-distance termination and outsourced traffic management solutions to telecoms worldwide, and mobile top-up, which enables customers
to transfer airtime and bundles of airtime, as well as messaging and data credits to friends and family overseas and domestically.
Core also includes several smaller communications and payments offerings.
|
|
●
|
Growth,
which is comprised of National Retail Solutions’ retailer point-of-sale, or POS,
terminal-based services and Boss Revolution international money transfer service. International
money transfers are generated by direct-to-consumer transfers initiated on the BOSS Revolution
Money app or through the Boss Revolution website as well as transfers initiated through
an authorized agent or retailer.
|
|
|
Three months ended
April 30,
|
|
|
Change
|
|
|
Nine months ended
April 30,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
(in millions)
|
|
|
|
|
Revenues
|
|
$
|
328.8
|
|
|
$
|
356.4
|
|
|
$
|
(27.6
|
)
|
|
|
(7.7
|
)%
|
|
$
|
1,018.6
|
|
|
$
|
1,128.5
|
|
|
$
|
(109.9
|
)
|
|
|
(9.7
|
)%
|
Direct cost of revenues
|
|
|
(279.4
|
)
|
|
|
(304.1
|
)
|
|
|
(24.7
|
)
|
|
|
(8.1
|
)
|
|
|
(869.0
|
)
|
|
|
(972.7
|
)
|
|
|
(103.7
|
)
|
|
|
(10.7
|
)
|
Selling, general and administrative
|
|
|
(38.1
|
)
|
|
|
(41.4
|
)
|
|
|
(3.3
|
)
|
|
|
(7.9
|
)
|
|
|
(119.3
|
)
|
|
|
(127.2
|
)
|
|
|
(7.9
|
)
|
|
|
(6.2
|
)
|
Depreciation and amortization
|
|
|
(4.1
|
)
|
|
|
(4.2
|
)
|
|
|
(0.1
|
)
|
|
|
(1.1
|
)
|
|
|
(11.8
|
)
|
|
|
(12.3
|
)
|
|
|
(0.5
|
)
|
|
|
(3.6
|
)
|
Severance
|
|
|
(0.6
|
)
|
|
|
(3.6
|
)
|
|
|
(3.0
|
)
|
|
|
(84.6
|
)
|
|
|
(0.6
|
)
|
|
|
(4.2
|
)
|
|
|
(3.6
|
)
|
|
|
(86.8
|
)
|
Other gains, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
0.2
|
|
|
|
nm
|
|
Income from operations
|
|
$
|
6.6
|
|
|
$
|
3.1
|
|
|
$
|
3.5
|
|
|
|
109.3
|
%
|
|
$
|
18.1
|
|
|
$
|
12.1
|
|
|
$
|
6.0
|
|
|
|
49.7
|
%
|
nm—not
meaningful
Revenues.
Telecom & Payment Services’ revenues and minutes of use for the three and nine months ended April 30, 2019 and
2018 consisted of the following:
|
|
Three months ended
April 30,
|
|
|
Change
|
|
|
Nine months ended
April 30,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
$/#
|
|
|
%
|
|
|
2019
|
|
|
2018
|
|
|
$/#
|
|
|
%
|
|
|
|
(in millions)
|
|
Core Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boss Revolution Calling
|
|
$
|
120.4
|
|
|
$
|
129.7
|
|
|
$
|
(9.3
|
)
|
|
|
(7.1
|
)%
|
|
$
|
366.1
|
|
|
$
|
393.4
|
|
|
$
|
(27.3
|
)
|
|
|
(6.9
|
)%
|
Carrier Services
|
|
|
121.0
|
|
|
|
142.5
|
|
|
|
(21.5
|
)
|
|
|
(15.1
|
)
|
|
|
391.1
|
|
|
|
482.2
|
|
|
|
(91.1
|
)
|
|
|
(18.9
|
)
|
Mobile Top-Up
|
|
|
67.6
|
|
|
|
62.5
|
|
|
|
5.1
|
|
|
|
8.1
|
|
|
|
197.2
|
|
|
|
186.1
|
|
|
|
11.1
|
|
|
|
5.9
|
|
Other
|
|
|
12.2
|
|
|
|
16.0
|
|
|
|
(3.8
|
)
|
|
|
(23.5
|
)
|
|
|
43.7
|
|
|
|
51.5
|
|
|
|
(7.8
|
)
|
|
|
(15.0
|
)
|
Growth
|
|
|
7.6
|
|
|
|
5.7
|
|
|
|
1.9
|
|
|
|
34.3
|
|
|
|
20.5
|
|
|
|
15.3
|
|
|
|
5.2
|
|
|
|
34.3
|
|
Total revenues
|
|
$
|
328.8
|
|
|
$
|
356.4
|
|
|
$
|
(27.6
|
)
|
|
|
(7.7
|
)%
|
|
$
|
1,018.6
|
|
|
$
|
1,128.5
|
|
|
$
|
(109.9
|
)
|
|
|
(9.7
|
)%
|
Minutes of use
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boss Revolution Calling
|
|
|
1,048
|
|
|
|
1,162
|
|
|
|
(114
|
)
|
|
|
(9.9
|
)%
|
|
|
3,245
|
|
|
|
3,647
|
|
|
|
(402
|
)
|
|
|
(11.0
|
)%
|
Carrier Services
|
|
|
4,031
|
|
|
|
4,548
|
|
|
|
(517
|
)
|
|
|
(11.4
|
)
|
|
|
13,379
|
|
|
|
15,044
|
|
|
|
(1,665
|
)
|
|
|
(11.1
|
)
|
Revenues and minutes of use from our Boss
Revolution calling service decreased in the three and nine months ended April 30, 2019 compared to the similar periods in fiscal
2018 in line with our expectations. Our Boss Revolution calling service 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 and messaging services.
Revenues and minutes of use from Carrier
Services decreased in the three and nine months ended April 30, 2019 compared to the similar periods in fiscal 2018. Over the
long-term, we expect that Carrier Services will continue to be impacted as communications globally transition away from traditional
international long-distance voice operators. However, Carrier Services’ minutes of use and revenues will likely continue
to fluctuate significantly from quarter-to-quarter, as we seek to maximize economics rather than necessarily sustain minutes of
use or revenues.
Revenues
from our international and domestic mobile top-up service increased in the three and nine months ended April 30, 2019 compared
to the similar periods in fiscal 2018 due to growth from new mobile partners and expanded bundled offerings of minutes, text and
data.
Revenues
from our growth initiatives increased in the three and nine months ended April 30, 2019 compared to the similar periods in fiscal
2018. Revenues from the Boss Revolution money transfer service through direct-to-consumer channels increased 98% and 127% in the
three and nine months ended April 30, 2019, respectively, compared to the similar periods in fiscal 2018 due to expansion of our
international disbursement network, enhanced transaction fulfillment technology, and intensified marketing. Direct-to-consumer
channels now contribute the vast majority of our money transfer revenue. National Retail Solutions’ revenues increased 32%
and 50% in the three and nine months ended April 30, 2019, respectively, compared to the similar periods in fiscal 2018 as its
POS network has achieved sufficient scale to enable new revenue sources that supplement the monthly recurring fees generated by
the use of its terminals. These emerging services include out-of-home advertising through the terminals’ consumer facing
screen, retail analytics, and credit card processing.
|
|
Three months ended
April 30,
|
|
|
|
|
|
Nine months ended
April 30,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Telecom & Payment Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost of revenues as a percentage of revenues
|
|
|
85.0
|
%
|
|
|
85.3
|
%
|
|
|
(0.3
|
)%
|
|
|
85.3
|
%
|
|
|
86.2
|
%
|
|
|
(0.9
|
)%
|
Direct Cost of Revenues
. Direct
cost of revenues in Telecom & Payment Services decreased in the three and nine months ended April 30, 2019 compared to the
similar periods in fiscal 2018 primarily due to decreases in Carrier Services’ and Boss Revolution calling service’s
direct cost of revenues in the three and nine months ended April 30, 2019 compared to the similar periods in fiscal 2018, partially
offset by an increase in mobile top-up’s direct cost of revenues in the three and nine months ended April 30, 2019 compared
to the similar periods in fiscal 2018. Direct cost of revenues as a percentage of revenues in Telecom & Payment Services decreased
30 and 90 basis points in the three and nine months ended April 30, 2019, respectively, compared to the similar periods in fiscal
2018 primarily due to the continued migration of Boss Revolution calling customers to the direct-to-consumer channel and, in Carrier
Services, by a shift to higher margin traffic resulting from the implementation of an outsourcing agreement in a key calling corridor.
Selling,
General and Administrative
. Selling, general and administrative expense in our Telecom & Payment Services segment decreased
in the three and nine months ended April 30, 2019 compared to the similar periods in fiscal 2018 primarily due to decreases in
employee compensation, stock-based compensation and sales commissions. As a percentage of Telecom & Payment Services’
revenue, Telecom & Payment Services’ selling, general and administrative expense was 11.6% in both the three months
ended April 30, 2019 and 2018, and increased to 11.7% from 11.3% in the nine months ended April 30, 2019 and 2018, respectively.
Depreciation
and Amortization.
Depreciation and amortization expense in our Telecom & Payment Services segment decreased in the
three and nine months ended April 30, 2019 compared to the similar periods in fiscal 2018 as more of our property, plant and equipment
became fully depreciated, partially offset by depreciation of equipment added to our telecommunications network and capitalized
costs of consultants and employees developing internal use software.
Severance.
In
the three and nine months ended April 30, 2019, Telecom & Payment Services incurred severance expense of $0.6 million. In
the three months ended April 30, 2018, Telecom & Payment Services commenced implementation of an adjustment to its workforce.
In the three and nine months ended April 30, 2018, Telecom & Payment Services incurred severance expense of $3.6 million and
$4.2 million, respectively.
Other
Gains, net.
Other gains, net of $0.2 million in the nine months ended April 30, 2019 was primarily due to the sale of
a calling card business in Asia.
net2phone
Segment
Our
net2phone segment, which represented 3.6% and 2.5% of our total revenues in the three months ended April 30, 2019 and 2018, respectively,
and 3.3% and 2.2% of our total revenues in the nine months ended April 30, 2019 and 2018, respectively, comprises two verticals:
|
●
|
net2phone-UCaaS
is a rapidly growing, global unified cloud communications offering for business.
|
|
●
|
net2phone-Platform
Services includes other offerings leveraging a common technology platform to provide
cable telephony and other voice services.
|
|
|
Three months ended
April 30,
|
|
|
Change
|
|
|
Nine months ended
April 30,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
(in millions)
|
|
Revenues
|
|
$
|
12.4
|
|
|
$
|
9.1
|
|
|
$
|
3.3
|
|
|
|
36.7
|
%
|
|
$
|
34.4
|
|
|
$
|
25.2
|
|
|
$
|
9.2
|
|
|
|
36.7
|
%
|
Direct cost of revenues
|
|
|
3.3
|
|
|
|
3.1
|
|
|
|
0.2
|
|
|
|
7.9
|
|
|
|
9.6
|
|
|
|
8.2
|
|
|
|
1.4
|
|
|
|
17.2
|
|
Selling, general and administrative
|
|
|
9.0
|
|
|
|
5.5
|
|
|
|
3.5
|
|
|
|
62.7
|
|
|
|
24.5
|
|
|
|
15.5
|
|
|
|
9.0
|
|
|
|
57.8
|
|
Depreciation
|
|
|
1.4
|
|
|
|
1.3
|
|
|
|
0.1
|
|
|
|
10.2
|
|
|
|
5.0
|
|
|
|
3.7
|
|
|
|
1.3
|
|
|
|
35.8
|
|
Loss from operations
|
|
$
|
(1.3
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(0.5
|
)
|
|
|
(64.8
|
)%
|
|
$
|
(4.7
|
)
|
|
$
|
(2.2
|
)
|
|
$
|
(2.5
|
)
|
|
|
(110.0
|
)%
|
Revenues.
net2phone’s
revenues in the three and nine months ended April 30, 2019 and 2018 consisted of the following:
|
|
Three months ended
April 30,
|
|
|
Change
|
|
|
Nine months ended
April 30,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
(in millions)
|
|
net2phone-UCaaS
|
|
$
|
6.6
|
|
|
$
|
3.7
|
|
|
$
|
2.9
|
|
|
|
79.6
|
%
|
|
$
|
17.5
|
|
|
$
|
9.3
|
|
|
$
|
8.2
|
|
|
|
87.3
|
%
|
net2phone-Platform Services
|
|
|
5.8
|
|
|
|
5.4
|
|
|
|
0.4
|
|
|
|
7.1
|
|
|
|
16.9
|
|
|
|
15.9
|
|
|
|
1.0
|
|
|
|
6.9
|
|
Total revenues
|
|
$
|
12.4
|
|
|
$
|
9.1
|
|
|
$
|
3.3
|
|
|
|
36.7
|
%
|
|
$
|
34.4
|
|
|
$
|
25.2
|
|
|
$
|
9.2
|
|
|
|
36.7
|
%
|
net2phone-UCaaS’s revenues increased
in the three and nine months ended April 30, 2019 compared to the similar periods in fiscal 2018 driven by the expansion of its
U.S. channel partner network and growth in South American markets. In August 2018, net2phone-UCaaS launched its service in Mexico,
and on September 14, 2018, net2phone-UCaaS entered the Canadian market through its acquisition of Versature Corp. Versature contributed
$1.4 million and $3.5 million in revenue in the three and nine months ended April 30, 2019, respectively, after its acquisition.
During
the three months ended April 30, 2019, net2phone continued to deploy its new proprietary platform that integrates voice, text,
messaging and web chat services across devices. net2phone expects that the unified communications functionality afforded by the
new platform will become a key driver of customer acquisitions.
|
|
Three months ended
April 30,
|
|
|
|
|
|
Nine months ended
April 30,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
net2phone
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost of revenues as a percentage of revenues
|
|
|
27.0
|
%
|
|
|
34.1
|
%
|
|
|
(7.1
|
)%
|
|
|
28.0
|
%
|
|
|
32.6
|
%
|
|
|
(4.6
|
)%
|
Direct
Cost of Revenues
. Direct cost of revenues increased in the three and nine months ended April 30, 2019 compared to the similar
periods in fiscal 2018 primarily because of an increase in the direct cost of revenues in net2phone-UCaaS, partially offset by
a decrease in the direct cost of revenues in net2phone-Platform Services. Direct cost of revenues as a percentage of revenues
decreased 710 and 460 basis points in the three and nine months ended April 30, 2019, respectively, compared to the similar periods
in fiscal 2018 because of decreases in direct cost of revenues as a percentage of revenues in both net2phone-UCaaS and net2phone-Platform
Services.
Selling,
General and Administrative
. Selling, general and administrative expense increased in the three and nine months ended April
30, 2019 compared to the similar periods in fiscal 2018 due to increases in employee compensation, marketing expense and sales
commissions. As a percentage of net2phone’s revenues, net2phone’s selling, general and administrative expenses were
72.2% and 60.7% in the three months ended April 30, 2019 and 2018, respectively, and 71.1% and 61.5% in the nine months ended
April 30, 2019 and 2018, respectively.
Depreciation.
The
increase in depreciation expense in the three and nine months ended April 30, 2019 compared to the similar periods in fiscal 2018
was due to increases in depreciation of net2phone-UCaaS’ customer premises equipment, additions and improvements to Versature’s
office, and capitalized costs of consultants and employees developing internal use software to support our new products.
All
Other
Operating
segments not reportable individually are included in All Other, which included the real estate holdings and other investments
that were included in the Rafael Spin-Off.
|
|
Three months ended
April 30,
|
|
|
Change
|
|
|
Nine months ended
April 30,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
(in millions)
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
%
|
|
|
$
|
—
|
|
|
$
|
1.2
|
|
|
$
|
(1.2
|
)
|
|
|
(100.0
|
)%
|
Direct cost of revenues
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Selling, general and administrative
|
|
|
—
|
|
|
|
0.7
|
|
|
|
(0.7
|
)
|
|
|
(100.0
|
)
|
|
|
—
|
|
|
|
2.6
|
|
|
|
(2.6
|
)
|
|
|
(100.0
|
)
|
Depreciation
|
|
|
—
|
|
|
|
0.4
|
|
|
|
(0.4
|
)
|
|
|
(100.0
|
)
|
|
|
—
|
|
|
|
1.2
|
|
|
|
(1.2
|
)
|
|
|
(100.0
|
)
|
Loss from operations
|
|
$
|
—
|
|
|
$
|
(1.1
|
)
|
|
$
|
1.1
|
|
|
|
100.0
|
%
|
|
$
|
—
|
|
|
$
|
(2.6
|
)
|
|
$
|
2.6
|
|
|
|
100.0
|
%
|
Revenues.
In April 2016, a subsidiary of Rafael entered into two leases with tenants for space in Rafael’s building at 520 Broad
Street, Newark, New Jersey. Rental income from the first lease commenced in December 2016, and rental income from the second lease
commenced in March 2017. In addition, in April 2017, a subsidiary of Rafael entered into a third lease for space in Rafael’s
building at 520 Broad Street. Rental income from the third lease commenced in March 2018. Effective with the Rafael Spin-Off,
we no longer own the 520 Broad Street building and its associated public garage, and we no longer record rental income from the
building.
Selling,
General and Administrative
. Selling, general and administrative expense in the three and nine months ended April 30, 2018
primarily included expenses related to Rafael, including its commercial real estate and Lipomedix. Rafael began consolidating
Lipomedix in November 2017 after Rafael purchased additional shares and increased its ownership to 50.6% of the issued and outstanding
ordinary shares of Lipomedix. Selling, general and administrative expense of Lipomedix in the three and nine months ended April
30, 2018 was $0.3 million and $0.6 million, respectively.
Corporate
|
|
Three months ended
April 30,
|
|
|
Change
|
|
|
Nine months ended
April 30,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
(in millions)
|
|
General and administrative
|
|
$
|
2.5
|
|
|
$
|
2.5
|
|
|
$
|
—
|
|
|
|
(3.1
|
)%
|
|
$
|
7.3
|
|
|
$
|
7.3
|
|
|
$
|
—
|
|
|
|
(0.8
|
)%
|
Severance
|
|
|
—
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
(100.0
|
)
|
|
|
—
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
(100.0
|
)
|
Other operating expense
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
(0.2
|
)
|
|
|
(65.2
|
)
|
|
|
0.6
|
|
|
|
2.0
|
|
|
|
(1.4
|
)
|
|
|
(67.2
|
)
|
Loss from operations
|
|
$
|
2.6
|
|
|
$
|
2.9
|
|
|
$
|
0.3
|
|
|
|
12.6
|
%
|
|
$
|
7.9
|
|
|
$
|
9.4
|
|
|
$
|
(1.5
|
)
|
|
|
(15.8
|
)%
|
Corporate
costs include compensation, consulting fees, treasury and accounts payable, tax and accounting services, human resources and payroll,
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.
General
and Administrative.
Corporate general and administrative expense was substantially unchanged in the three and nine months
ended April 30, 2019 compared to the similar periods in fiscal 2018 primarily because decreases in stock-based compensation and
legal fees were mostly offset by an increase in employee compensation. As a percentage of our total consolidated revenues, Corporate
general and administrative expense was 0.7% in the three months ended April 30, 2019 and 2018, and 0.7% and 0.6% in the nine months
ended April 30, 2019 and 2018, respectively.
Other
Operating Expense
. On July 31, 2013, we completed a pro rata distribution of the common
stock of our former subsidiary Straight Path Communications Inc., or Straight Path, to our stockholders. In the three months ended
April 30, 2019 and 2018, we incurred legal fees of $0.1 million and $0.3 million, respectively, and in the nine months ended April
30, 2019 and 2018, we incurred legal fees of $0.6 million and $1.3 million, respectively, related to the Straight Path stockholders’
putative class action and derivative complaint (see Note 15 to the Consolidated Financial Statements included in Item 1 to Part
I of this Quarterly Report on Form 10-Q). In addition, in the nine months ended April 30, 2018, we incurred fees of $0.7 million
related to other legal matters.
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 expenses
was $0.3 million and $1.0 million in the three months ended April 30, 2019 and 2018, respectively, and $1.2 million and $2.8 million
in the nine months ended April 30, 2019 and 2018, respectively. At April 30, 2019, unrecognized compensation cost related to non-vested
stock-based compensation, including stock options and restricted stock, was an aggregate of $1.3 million. The unrecognized compensation
cost is expected to be recognized over the remaining vesting period that ends in 2020.
|
|
Three months ended
April 30,
|
|
|
Change
|
|
|
Nine months ended
April 30,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
(in millions)
|
|
Income (loss) from operations
|
|
$
|
2.7
|
|
|
$
|
(1.7
|
)
|
|
$
|
4.4
|
|
|
|
262.4
|
%
|
|
$
|
5.6
|
|
|
$
|
(2.1
|
)
|
|
$
|
7.7
|
|
|
|
366.7
|
%
|
Interest income, net
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
(13.2
|
)
|
|
|
0.5
|
|
|
|
0.9
|
|
|
|
(0.4
|
)
|
|
|
(44.7
|
)
|
Other income (expense), net
|
|
|
0.4
|
|
|
|
(0.7
|
)
|
|
|
1.1
|
|
|
|
150.6
|
|
|
|
(0.5
|
)
|
|
|
(1.2
|
)
|
|
|
0.7
|
|
|
|
57.7
|
|
Benefit from (provision for) income taxes
|
|
|
0.9
|
|
|
|
(1.1
|
)
|
|
|
2.0
|
|
|
|
184.6
|
|
|
|
(2.1
|
)
|
|
|
(0.9
|
)
|
|
|
(1.2
|
)
|
|
|
(120.6
|
)
|
Net income (loss)
|
|
|
4.2
|
|
|
|
(3.3
|
)
|
|
|
7.5
|
|
|
|
228.7
|
|
|
|
3.5
|
|
|
|
(3.3
|
)
|
|
|
6.8
|
|
|
|
204.9
|
|
Net income attributable to noncontrolling interests
|
|
|
(0.3
|
)
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
(25.9
|
)
|
|
|
(0.9
|
)
|
|
|
(0.7
|
)
|
|
|
(0.2
|
)
|
|
|
(27.2
|
)
|
Net income (loss) attributable to IDT Corporation
|
|
$
|
3.9
|
|
|
$
|
(3.5
|
)
|
|
$
|
7.4
|
|
|
|
211.9
|
%
|
|
$
|
2.6
|
|
|
$
|
(4.0
|
)
|
|
$
|
6.6
|
|
|
|
164.7
|
%
|
Other
Income (Expense), net.
Other income (expense), net consists of the following:
|
|
Three months ended
April 30,
|
|
|
Nine months ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in millions)
|
|
Foreign currency transaction losses
|
|
$
|
—
|
|
|
$
|
(0.7
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(1.2
|
)
|
Gain on investments
|
|
|
0.6
|
|
|
|
—
|
|
|
|
0.7
|
|
|
|
—
|
|
Other
|
|
|
(0.2
|
)
|
|
|
—
|
|
|
|
(0.4
|
)
|
|
|
—
|
|
Total other income (expense), net
|
|
$
|
0.4
|
|
|
$
|
(0.7
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(1.2
|
)
|
Benefit
from (Provision for) Income Taxes.
The change in income tax (benefit) expense in the three and nine months ended April 30,
2019 compared to the similar periods in fiscal 2018 was primarily due to differences in the amount of income earned in the various
taxing jurisdictions. In addition, in the nine months ended April 30, 2018, we recorded a noncurrent receivable and an income
tax benefit of $3.3 million for the anticipated refund of an AMT credit carry-over because of “The Tax Cuts and Jobs Act.”
On
December 22, 2017, the U.S. government enacted “An Act to Provide for Reconciliation Pursuant to Titles II and V of the
Concurrent Resolution on the Budget for Fiscal Year 2018”, which is commonly referred to as “The Tax Cuts and Jobs
Act,” or the Tax Act. The Tax Act reduces the U.S. federal statutory corporate tax rate from 35.0% to 21.0% effective January
1, 2018, requires companies to pay a one-time repatriation tax, or transition tax, on earnings of certain foreign subsidiaries
that were previously tax deferred, and makes other changes to the U.S. income tax code. Due to our July 31 fiscal year-end, the
lower corporate income tax rate is phased in, resulting in a blended U.S. federal statutory tax rate of approximately 26.9% for
our fiscal 2018, and 21.0% for our fiscal years thereafter.
We
have completed our accounting for the income tax effects of the Tax Act. The transition tax is based on total post-1986 earnings
and profits which were previously deferred from U.S. income taxes. In fiscal 2018, we estimated that we will utilize $12 million
of federal net operating loss carryforwards to offset the transition tax that we expect we will incur. In fiscal 2019, we adjusted
this amount to $11 million of federal net operating loss carryforwards usage. These net operating loss carryforwards have a full
valuation allowance and as such there is no impact on our results of operations.
The
global intangible low taxed income, or GILTI, and base erosion anti-abuse tax, or BEAT, became effective on August 1, 2018. We
reviewed the proposed guidance that was issued by the Internal Revenue Service in September 2018. As a result of our fully reserved
net operating losses in the United States, we concluded there will be no material impact on our tax provision as a result of GILTI.
We currently believe there will be no impact from the BEAT.
We
anticipate that our assumptions may change as a result of future guidance and interpretation from the Internal Revenue Service,
the SEC, the FASB, and various other taxing jurisdictions, and any additional adjustments will be made at that time.
Net
Income Attributable to Noncontrolling Interests
. The change in the net income attributable to noncontrolling interests in
the three and nine months ended April 30, 2019 compared to the similar periods in fiscal 2018 was due to the reduction in the
net loss attributable to the noncontrolling interests in Rafael as a result of the Rafael Spin-Off, partially offset by a decrease
in the net income attributable to the noncontrolling interests in certain IDT Telecom subsidiaries due to a decrease in the net
income of these subsidiaries.
Liquidity
and Capital Resources
General
We
currently expect our cash from operations in the next twelve months and the balance of cash, cash equivalents and marketable securities
that we held at April 30, 2019 to be sufficient to meet our currently anticipated working capital and capital expenditure requirements
during the twelve-month period ending April 30, 2020.
At
April 30, 2019, we had cash, cash equivalents and debt securities of $79.6 million and a working capital deficit (current liabilities
in excess of current assets) of $15.9 million.
We
treat unrestricted cash and cash equivalents held by IDT Payment Services as substantially restricted and unavailable for other
purposes. At April 30, 2019, “Cash and cash equivalents” in our consolidated balance sheet included an aggregate of
$19.8 million held by IDT Payment Services that was unavailable for other purposes.
On
August 1, 2018, we adopted the ASU related to the classification and presentation of changes in restricted cash in the statement
of cash flows. The ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as
restricted cash or restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning of the
period and end of the period total amounts shown on the statement of cash flows. This ASU also effected the net cash provided
by or used in operating activities.
|
|
Nine months ended
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in millions)
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
47.3
|
|
|
$
|
1.1
|
|
Investing activities
|
|
|
(13.9
|
)
|
|
|
(1.5
|
)
|
Financing activities
|
|
|
7.6
|
|
|
|
(22.0
|
)
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents
|
|
|
(2.0
|
)
|
|
|
5.4
|
|
Increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents
|
|
$
|
39.0
|
|
|
$
|
(17.0
|
)
|
Operating
Activities
Our
cash flow from operations varies significantly from quarter to quarter and from year to year, depending on our operating results
and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable.
Gross
trade accounts receivable decreased to $59.2 million at April 30, 2019 from $76.1 million at July 31, 2018 primarily due to collections
in the nine months ended April 30, 2019 in excess of amounts billed 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 $40.7 million at April 30, 2019 from $55.0 million at July 31, 2018 primarily due to the $8.6 million
non-cash reduction to deferred revenue, with an offsetting reduction to accumulated deficit, for the cumulative effect of the
adoption of ASC 606 as of August 1, 2018. The remaining decrease was primarily due to decreases in the Boss Revolution international
calling service and traditional calling cards balances.
The
Separation and Distribution Agreement related to the spin-off of Straight Path provides for us and Straight Path to indemnify
each other for certain liabilities. We and Straight Path each communicated that it was entitled to indemnification from the other
in connection with the inquiry described above and related matters. On October 24, 2017, we, Straight Path, Straight Path IP Group,
Inc., or SPIP, and PR-SP IP Holdings LLC, or PR-SP, an entity owned by Howard S. Jonas, our Chairman of the Board, entered into
a Settlement Agreement and Release that provides for, among other things, the settlement and mutual release of potential liabilities
and claims that may exist or arise under the Separation and Distribution Agreement between us and Straight Path. In exchange for
the mutual release, in October 2017, we paid Straight Path an aggregate of $16 million in cash, Straight Path transferred to us
its majority ownership interest in Straight Path IP Group Holding, Inc., or New SPIP, which holds the equity of SPIP, the entity
that holds intellectual property primarily related to communications over computer networks, subject to the right to receive 22%
of the net proceeds, if any, received by SPIP from licenses, settlements, awards or judgments involving any of the patent rights
and certain transfers of the patents or related rights, that will be retained by Straight Path’s stockholders (such equity
interest, subject to the retained interest right, the “IP Interest”), and we undertook certain funding and other obligations
related to SPIP. The Settlement Agreement and Release allocates (i) $10 million of the payment and the retained interest right
to the settlement of claims and the mutual release and (ii) $6 million to the transfer of the IP Interest. In the accompanying
consolidated statement of cash flows in the nine months ended April 30, 2018, $10 million of the aggregate payment to Straight
Path was included in operating activities and $6 million of the aggregate payment was included in investing activities.
In
August 2017, we entered into a Reciprocal Services Agreement with a telecom operator in Central America for a full range of services,
including, but not limited to, termination of inbound and outbound international long-distance voice calls. We have committed
to pay such telecom operator monthly committed amounts during the term of the agreement. In addition, under certain limited circumstances,
the parties may renegotiate the amount of the monthly payments. In the event the parties do not agree on re-pricing terms after
good faith negotiations, then either party has the right to terminate the agreement. Pursuant to the agreement, in September 2017,
we deposited $11.75 million into an escrow account as security for the benefit of the telecom operator, which was included in
operating activities in the accompanying consolidated statement of cash flows. In fiscal 2018, the escrow account balance was
reduced to $9.2 million, which is included in “Other current assets” at April 30, 2019 and July 31, 2018 in the accompanying
consolidated balance sheet based on the terms and conditions of the agreement.
Investing
Activities
Our
capital expenditures were $13.7 million and $16.0 million in the nine months ended April 30, 2019 and 2018, respectively. We currently
anticipate that total capital expenditures for the twelve-month period ending April 30, 2020 will be $18 million to $20 million.
We expect to fund our capital expenditures with our net cash provided by operating activities and cash, cash equivalents and marketable
securities on hand.
On September 14, 2018, we acquired 100%
of the outstanding shares of Versature, a UCaaS provider serving the Canadian market. The cash paid for the acquisition net of
cash acquired was $5.5 million.
In
the nine months ended April 30, 2019, proceeds from redemption of investments was $1.0 million, and cash used for the purchase
of investments was $1.0 million.
On
October 24, 2017, we sold our entire majority interests in New SPIP to PR-SP in exchange for $6 million and the assumption by
PR-SP of our funding and other obligations. As described above, $6 million of the aggregate payment to Straight Path that was
allocated to the transfer of the IP Interest was included in investing activities in the nine months ended April 30, 2018.
Purchases
of marketable securities were $7,000 and $22.2 million in the nine months ended April 30, 2019 and 2018, respectively. Proceeds
from maturities and sales of marketable securities were $5.3 million and $36.7 million in the nine months ended April 30, 2019
and 2018, respectively.
Financing
Activities
In
the nine months ended April 30, 2018, we paid cash dividends of $0.47 per share on our Class A common stock and Class B common
stock, or $11.7 million in total. In fiscal 2018, our Board of Directors discontinued our quarterly dividend, electing instead
to repurchase shares of our Class B common stock when warranted by market conditions, available resources, and our business outlook
and results, as well as invest in our growth business initiatives.
On
March 26, 2018, we completed the Rafael Spin-Off. The disposition of Rafael did not meet the criteria to be reported as a discontinued
operation and accordingly, Rafael’s assets, liabilities, results of operations and cash flows have not been reclassified.
At the time of the Rafael Spin-Off, Rafael owned the commercial real estate assets and interests in two clinical stage pharmaceutical
companies that were held by us. Prior to the Rafael Spin-Off, we transferred to Rafael cash, cash equivalents, marketable securities,
and hedge fund and other investments. As a result of the Rafael Spin-Off, we deconsolidated cash and cash equivalents of $9.3
million, and net assets excluding cash and cash equivalents of $105.6 million.
We
distributed cash of $1.2 million and $1.0 million in the nine months ended April 30, 2019 and 2018, respectively, to the holders
of noncontrolling interests in certain of our subsidiaries.
On
December 21, 2018, we sold 2,546,689 shares of our Class B common stock that were held in treasury to Howard S. Jonas for aggregate
consideration of $14.8 million. The price per share of $5.89 was equal to the closing price of our Class B common stock on April
16, 2018, the last closing price before approval of the sale by our Board of Directors and its Corporate Governance Committee.
On May 31, 2018, Mr. Jonas paid $1.5 million of the purchase price, and he paid the balance of the purchase price on December
21, 2018 after approval of the sale by the Company’s stockholders at the 2018 annual meeting of stockholders. The purchase
price was reduced by approximately $0.2 million, which was the amount of dividends paid on 2,546,689 shares of our Class B common
stock whose record date was between April 16, 2018 and the issuance of the shares.
At
the time of the acquisition in September 2018, Versature had financing-related other liabilities of $0.7 million. During the period
from the acquisition to April 30, 2019, we repaid $0.6 million of these liabilities.
As
of October 31, 2018, IDT Telecom, Inc., or IDT Telecom, entered into a credit agreement with TD Bank, N.A. for a line of credit
facility for up to a maximum principal amount of $25.0 million. IDT Telecom may use the proceeds to finance working capital requirements,
acquisitions and for other general corporate purposes. The line of credit facility is secured by primarily all of IDT Telecom’s
assets. The principal outstanding bears interest per annum at the LIBOR rate adjusted by the Regulation D maximum reserve requirement
plus 125 basis points. Interest is payable monthly, and all outstanding principal and any accrued and unpaid interest is due on
the maturity date of July 15, 2019. At April 30, 2019, there was no amount outstanding under the facility. In the nine months
ended April 30, 2019, we borrowed and repaid an aggregate of $3.0 million under the facility. IDT Telecom pays a quarterly unused
commitment fee of 0.3% per annum on the average daily balance of the unused portion of the $25.0 million commitment. IDT Telecom
is required to comply with various affirmative and negative covenants as well as maintain certain financial targets and ratios
during the term of the facility, including IDT Telecom may not pay any dividend on its capital stock.
IDT
Telecom had a credit agreement, dated July 12, 2012, with TD Bank, N.A. for a line of credit facility for up to a maximum principal
amount of $25.0 million. The credit agreement was terminated on July 20, 2018. In the nine months ended April 30, 2018, IDT Telecom
borrowed and repaid an aggregate of $22.1 million under the facility.
We
have an existing stock repurchase program authorized by our Board of Directors for the repurchase of up to an aggregate of 8.0 million
shares of our Class B common stock. In the nine months ended April 30, 2019, we repurchased 729,110 shares of Class B common
stock for an aggregate purchase price of $3.9 million. There were no repurchases under the program in the nine months ended April
30, 2018. At April 30, 2019, 6.9 million shares remained available for repurchase under the stock repurchase program.
In
the nine months ended April 30, 2019 and 2018, we paid $28,000 and $0.1 million, respectively, to repurchase 3,748 and 5,170 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 lapsing of restrictions on awards of restricted stock. Such shares were repurchased by us based
on their fair market value on the trading day immediately prior to the vesting date.
Other
Sources and Uses of Resources
On June 22, 2017, IDT Telecom entered
into a Share Purchase Agreement with JAR Fintech Limited and JAR Capital Limited to sell the capital stock of IDT Financial Services
Holding Limited, or IDTFS Holding, a company incorporated under the laws of Gibraltar and a wholly-owned subsidiary of IDT Telecom,
to JAR Fintech Limited. IDTFS Holding is the sole shareholder of IDT Financial Services Limited, our Gibraltar-based bank and
e-money issuer. The sale was subject to regulatory approval and other conditions. On October 25, 2018, JAR Fintech Limited notified
us that it considers the agreement terminated by the effluxion of time, however the parties had indicated that they remained interested
in consummating a transaction regarding the sale of IDTFS Holding, pending, among other things, greater clarity regarding the
timing of Brexit and its effect on IDTFS Holding.
We
intend to, where appropriate, make strategic investments and acquisitions to complement, expand, and/or enter into new businesses.
In considering acquisitions and investments, we search for opportunities to profitably grow our existing businesses and/or to
add qualitatively to the range and diversification of businesses in our portfolio. At this time, we cannot guarantee that we will
be presented with acquisition opportunities that meet our return on investment criteria, or that our efforts to make acquisitions
that meet our criteria will be successful.
Contractual
Obligations and Other Commercial Commitments
The
following table quantifies our future contractual obligations and commercial commitments at April 30, 2019:
Payments Due by Period
(in millions)
|
|
Total
|
|
|
Less than
1 year
|
|
|
1–3 years
|
|
|
4–5 years
|
|
|
After 5 years
|
|
Operating leases
|
|
$
|
17.3
|
|
|
$
|
6.1
|
|
|
$
|
5.6
|
|
|
$
|
3.8
|
|
|
$
|
1.8
|
|
Purchase commitments (1)
|
|
|
45.1
|
|
|
|
45.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total contractual obligations (2)
|
|
$
|
62.4
|
|
|
$
|
51.2
|
|
|
$
|
5.6
|
|
|
$
|
3.8
|
|
|
$
|
1.8
|
|
|
(1)
|
Purchase commitments include the aggregate commitments under telecom services commitments with telecom operators in Central
America, including, but not limited to, termination of inbound and outbound international long-distance voice calls. The purchase
commitments include telecom services commitments that became effective on June 1, 2019.
|
|
(2)
|
The
above table does not include an aggregate of $16.1 million in performance bonds due to
the uncertainty of the amount and/or timing of any such payments.
|
Off-Balance
Sheet Arrangements
We
do not have any “off-balance sheet arrangements,” as defined in relevant SEC regulations that are reasonably likely
to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital
resources, other than the following.
In
connection with the Rafael Spin-Off in March 2018, we and Rafael entered into various agreements prior to the spin-off including
a Separation and Distribution Agreement to effect the separation and provide a framework for our relationship with Rafael after
the spin-off, and a Tax Separation Agreement, which sets forth the responsibilities of us and Rafael with respect to, among other
things, liabilities for federal, state, local and foreign taxes for periods before and including the spin-off, the preparation
and filing of tax returns for such periods and disputes with taxing authorities regarding taxes for such periods. Pursuant to
the Separation and Distribution Agreement, we indemnify Rafael and Rafael indemnifies us for losses related to the failure of
the other to pay, perform or otherwise discharge, any of the liabilities and obligations set forth in the agreement. Pursuant
to the Tax Separation Agreement, we indemnify Rafael from all liability for taxes of ours, other than Rafael and its subsidiaries,
for any taxable period, and from all liability for taxes due to the spin-off.
In
connection with our spin-off of Straight Path, in July 2013, we and Straight Path entered into various agreements prior to the
spin-off including a Separation and Distribution Agreement to effect the separation and provide a framework for our relationship
with Straight Path after the spin-off, and a Tax Separation Agreement, which sets forth the responsibilities of us and Straight
Path with respect to, among other things, liabilities for federal, state, local and foreign taxes for periods before and including
the spin-off, the preparation and filing of tax returns for such periods and disputes with taxing authorities regarding taxes
for such periods. Pursuant to the Separation and Distribution Agreement, we indemnify Straight Path and Straight Path indemnifies
us for losses related to the failure of the other to pay, perform or otherwise discharge, any of the liabilities and obligations
set forth in the agreement. Pursuant to the Tax Separation Agreement, we indemnify Straight Path from all liability for taxes
of Straight Path or any of its subsidiaries or relating to the Straight Path business with respect to taxable periods ending on
or before the spin-off, from all liability for taxes of ours, other than Straight Path and its subsidiaries, for any taxable period,
and from all liability for taxes due to the spin-off. (See Note 15 to the Consolidated Financial Statements included in Item 1
to Part I of this Quarterly Report on Form 10-Q).
We
have performance bonds issued through third parties for the benefit of various states in order to comply with the states’
financial requirements for money remittance licenses and telecommunications resellers. At April 30, 2019, we had aggregate performance
bonds of $16.1 million outstanding.