IDT Corporation — Form 10-Q Summary
Business context and reporting period. This filing covers the fiscal third quarter and nine months ended April 30, 2022; IDT’s fiscal year ends July 31. The company reports Fintech, net2phone-UCaaS, and Traditional Communications. Unless noted otherwise, financial figures below are in U.S. dollars and millions.
Key financial results
| Metric | Three months ended Apr. 30, 2022 | Prior year | Nine months ended Apr. 30, 2022 | Prior year |
|---|---|---|---|---|
| Revenue | $328.4 | $373.8 | $1,035.5 | $1,057.0 |
| Income from operations | $13.3 | $13.9 | $40.9 | $40.0 |
| Net income | $5.1 | $36.4 | $11.0 | $58.0 |
| Net income attributable to IDT | $4.8 | $36.3 | $9.8 | $57.7 |
| Diluted EPS | $0.18 | $1.39 | $0.37 | $2.23 |
Quarterly revenue declined 12.2%; nine-month revenue declined 2.0%. Operating margin was approximately 4.1% for the quarter and 4.0% for the nine-month period. Gross margin, calculated as revenue less direct costs of revenue, was approximately 24.6% and 23.1%, respectively.
Cash flow and liquidity: Nine-month operating cash flow was $13.3, compared with $38.1 in the prior year. Investing cash use was $25.9, and financing cash use was $2.1. Cash, cash equivalents, and restricted cash totaled $198.1 at April 30, including $101.0 of restricted cash, much of it safeguarding customer funds. Management reported $136.0 of cash, cash equivalents, debt securities, and current equity investments, and working capital of $55.7. The filing does not report material borrowings at period-end: the $25.0 revolving facility had no balance outstanding, although $2.6 was borrowed and repaid during the nine months. Operating lease liabilities totaled $8.2.
Material changes and segment performance
- Traditional Communications: Quarterly revenue fell 17.3% to $285.9; nine-month revenue fell 5.0% to $920.9. Quarterly operating income declined to $17.4 from $20.4. BOSS Revolution Calling and IDT Global revenue and minutes declined, reflecting reduced pandemic-era calling demand and ongoing substitution by mobile plans, messaging, and online calling or video services. Mobile Top-Up revenue fell 12.6% in the quarter but rose 11.0% over nine months.
- Fintech: Revenue increased 61.8% to $26.9 for the quarter and 31.4% to $72.6 for nine months. Quarterly operating income was $0.2, versus a $1.4 loss; the segment recorded a $0.1 loss for nine months, versus $1.5 income. NRS recurring revenue rose 101.9% in the quarter; active POS terminals increased 37% to 17,900, and payment-processing accounts increased 89% to 9,200.
- net2phone-UCaaS: Revenue grew 35.9% to $15.6 for the quarter and 31.2% to $42.0 for nine months, while operating losses narrowed to $2.3 and $9.3, respectively. Seats served increased 33% to 279,000, including about 7,000 from the Integra acquisition. Subscription revenue rose 42% in the quarter and 38% for nine months.
Net income fell sharply despite broadly stable operating income. Other expense was $5.1 in the quarter and $24.2 for nine months, driven mainly by investment losses, including unrealized losses on Rafael Holdings shares of $0.6 and $14.1, respectively. In the prior-year periods, investment gains and a $24.0 income-tax valuation-allowance release boosted results. The company recorded income-tax expense in 2022, compared with a tax benefit in 2021.
Outlook, management commentary, and risks
- Management said operating cash flow and the April 30 balances of cash, cash equivalents, debt securities, and current equity investments should cover anticipated working capital and capital expenditure needs through April 30, 2023, while noting uncertainty around COVID-19 impacts.
- Expected capital expenditures were $18–$20 for the twelve months ending April 30, 2023; nine-month capital expenditures were $13.8.
- The planned net2phone spin-off was postponed on May 5, 2022, in light of market conditions. Management said a spin-off or other potential disposition is not assured.
- New risks disclosed include potential disruption to research and development personnel in Belarus from the Russia-Ukraine conflict, sanctions, or cyberattacks, and uncertainty affecting U.K. operations following Brexit.
- The Straight Path shareholder litigation remained pending; trial was scheduled to begin August 29, 2022. IDT said it could not estimate potential liability. A USAC audit of FCC Form 499-A was pending; the company had been invoiced $4.7 for regulatory fees it was contesting and had accrued $38.1 for FCC-related fees covering the audit year and other years.
- Other exposures include possible sales/use-tax assessments, $22.0 of performance bonds, and up to $10.0 of potential NRS share redemption. The filing also reports $5.0 of purchase commitments. The company said it was in compliance with its revolving-facility covenants.
Most important facts for investors to verify
- Whether Traditional Communications’ revenue and usage declines continue, and whether growth in Fintech and net2phone can offset them.
- How much of the reported $136.0 in cash and investments is accessible for general corporate purposes, given restricted and safeguarded balances.
- The magnitude and volatility of investment gains or losses and their effect on reported earnings.
- Developments and potential financial exposure in the Straight Path litigation, USAC audit, and sales-tax matters.
- Progress and expected costs of acquisitions, the postponed net2phone spin-off, and the stated capital-expenditure plan.