IDT Corporation — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended July 31, 2021; comparison is fiscal 2020. This is an annual filing, not a standalone 2021 fourth-quarter report. IDT provides fintech, cloud communications and traditional communications services.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $1,447.0 million | $1,345.8 million | Up 7.5% |
| Income from operations | $57.0 million | $17.9 million | Up $39.1 million |
| Operating margin | 4.0% | 1.3% | Up 2.7 percentage points |
| Net income | $96.9 million | $21.4 million | Up $75.5 million |
| Net income attributable to IDT | $96.5 million | $21.4 million | Up 350% |
| Diluted EPS | $3.70 | $0.81 | Up $2.89 |
| Operating cash flow | $66.6 million | $(29.6) million | Improved $96.2 million |
Direct costs were 79.8% of revenue, implying a 20.2% gross margin, versus 80.5% of revenue and a 19.5% gross margin in FY2020. Selling, general and administrative expense was 15.1% of revenue, down from 16.0%.
The $96.9 million net income included a $31.7 million income-tax benefit, principally associated with a $46.5 million release of valuation allowance on deferred tax assets. Other income included $8.8 million of investment gains, primarily appreciation of Rafael Holdings shares. These items materially boosted reported earnings and should be distinguished from operating performance.
Segments and notable changes
- Traditional Communications: Revenue of $1,328.8 million, up 6.0%; operating income of approximately $80.1 million versus $39.3 million. Mobile Top-Up revenue rose 38.0% to $461.6 million. BOSS Revolution Calling declined 2.8% to $455.2 million, while Carrier Services declined 8.5% to $361.0 million. Carrier Services minutes fell 27%.
- Fintech: Revenue rose 24.1% to $74.3 million, but the segment recorded a $1.5 million operating loss versus $3.4 million of income. NRS revenue more than doubled to $24.7 million; active POS terminals reached 14,000 and payment-processing accounts reached 5,600. BOSS Revolution Money Transfer revenue increased 3.4% to $49.6 million.
- net2phone-UCaaS: Revenue increased 38.1% to $43.9 million, and operating loss narrowed to $14.3 million from $15.1 million. Seats served increased 47% to 226,000; subscription revenue increased 39% to $41.5 million.
Traditional Communications remained 91.8% of total revenue. Management cited digital-channel growth and cost management as contributors to improved margins, while legacy paid international voice and wholesale traffic continued to face substitution and pricing pressure.
Cash, liquidity and debt
- Cash, cash equivalents, debt securities and unrestricted current equity investments were reported at $161.4 million at July 31, 2021; working capital was $48.8 million. Separately, balance-sheet cash and cash equivalents were $107.1 million, restricted cash was $119.8 million, and total cash including restricted balances was $226.9 million.
- Some balances are not freely available: $115.8 million of restricted cash supported customer deposits at the Gibraltar-based bank, and $15.3 million held by IDT Payment Services was treated as substantially restricted.
- No borrowings were outstanding under the new $25 million revolving credit facility at year-end. The company reported no material funded debt on the balance sheet; the facility is secured by substantially all assets of IDT Telecom and carries financial covenants.
- Capital expenditures were $16.8 million in FY2021. Management forecast FY2022 capital expenditures of $18–$20 million and said available resources and operating cash flow were expected to cover anticipated FY2022 working-capital and capital needs.
- The company repurchased 463,792 Class B shares for $2.8 million under its authorization in FY2021; 5.8 million shares remained available. No dividends were paid.
Outlook, risks and unusual items
- Management was preparing for a potential spin-off of net2phone cloud communications, with preparations expected to be complete by the end of calendar 2021 or shortly thereafter. Completion and timing were not assured.
- Management expects ongoing growth in higher-margin fintech and cloud offerings, but traditional calling and carrier revenues face pressure from OTT services, unlimited calling plans, declining minutes and intense price competition.
- COVID-19 effects were mixed: digital consumer transactions benefited, while Carrier Services and some international net2phone markets were adversely affected. Management said effects remained uncertain.
- A USAC audit of the company’s 2017 FCC Form 499-A remained unresolved. Accrued FCC-related regulatory fees were $38.3 million at year-end; the company had appealed preliminary findings and reported invoices totaling $4.7 million that it did not intend to pay unless its appeal failed.
- Other exposures include potential sales-tax liabilities following the Wayfair decision; money-transmitter, telecom and privacy regulation; cybersecurity and supplier risks; and international political and currency exposure. A Straight Path stockholder lawsuit remained in discovery, with trial scheduled for May 2022; the company said potential liability could not be estimated. A separate Sprint patent complaint had been dismissed without prejudice, with potential liability also not estimable.
- FY2021 included a $2.0 million gain from sale of litigation rights and a $0.5 million expense related to a net2phone customer indemnification matter. The statements received an unqualified audit opinion; the auditor reported no critical audit matters and effective internal control over financial reporting.
Important facts for investors to verify
- How much of the earnings increase reflects recurring operating improvement versus the tax valuation-allowance release and investment gains.
- Whether net2phone-UCaaS can grow revenue while reducing its operating loss, and whether the proposed spin-off proceeds and on what terms.
- Whether Mobile Top-Up growth and NRS customer expansion can offset continued declines in calling and Carrier Services volumes and revenue.
- The outcome and potential financial impact of the USAC audit, Wayfair-related sales-tax exposure and pending litigation.
- The availability of reported cash and investments after accounting for restricted balances, customer funds and regulatory liquidity requirements.