IDT Corporation — Form 10-Q Summary
Reporting period: Fiscal first quarter ended October 31, 2020; comparisons are with the three months ended October 31, 2019. Amounts are in U.S. dollars. IDT reorganized its reportable segments effective August 1, 2020; prior-period segment figures were restated.
Financial performance and position
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $343.4 million | $340.2 million |
| Operating income (loss) | $13.3 million | $(1.4) million |
| Net income (loss) attributable to IDT | $8.3 million | $(1.5) million |
| Diluted earnings (loss) per share | $0.32 | $(0.06) |
| Cash from (used in) operations | $18.8 million | $(5.0) million |
- Revenue increased 1.0% year over year. Direct costs were $273.2 million, leaving a revenue contribution after direct costs of $70.3 million, or 20.5% of revenue, versus $60.7 million, or 17.9%, a year earlier.
- Operating margin was approximately 3.9%, compared with approximately negative 0.4%. Net income included $1.4 million of net other expense, including $0.9 million of investment losses and $0.4 million of foreign-currency transaction losses.
- Investing cash outflow was $27.3 million, including $29.3 million of purchases of debt securities and equity investments and $4.6 million of capital expenditures. Financing cash outflow was $2.7 million, primarily from $2.9 million of Class B share repurchases. Cash, cash equivalents and restricted cash decreased $13.1 million to $188.1 million.
- At quarter-end, cash and cash equivalents were $74.1 million, debt securities $23.9 million and current equity investments $21.0 million; together these totaled $119.0 million. Restricted cash was $114.0 million, largely backing customer deposits at the Gibraltar-based bank, and is not generally available for other purposes. IDT also identified $9.0 million of cash held by IDT Payment Services as unavailable for other purposes.
- Working capital was $5.4 million; current assets were $325.3 million and current liabilities $319.9 million. No conventional borrowings are presented on the balance sheet. Operating lease liabilities totaled $9.7 million. A prior $25 million credit facility expired in July 2020; the company said it would seek a similar agreement in fiscal 2021.
Material changes and segment results
- Fintech: Revenue rose 110% to $20.1 million and segment operating income improved to $3.1 million from a $2.7 million loss. BOSS Revolution Money Transfer revenue more than doubled, principally from digital transactions; NRS revenue also more than doubled as its POS network and payment and advertising services expanded.
- net2phone-UCaaS: Revenue grew 34% to $9.6 million, while the operating loss was $3.8 million versus $3.7 million. Seats increased 58% year over year to 176,000 and subscription revenue rose 32% to $9.0 million.
- Traditional Communications: Revenue declined 3% to $313.7 million, but operating income more than doubled to $15.8 million as expenses fell. Mobile Top-Up grew 25% to $95.8 million; BOSS Revolution Calling revenue was essentially flat at $116.2 million; Carrier Services fell 23% to $87.8 million. Carrier Services minutes declined 32%.
- Consolidated revenue growth was modest as Fintech and UCaaS gains were largely offset by lower Traditional Communications revenue. The prior-year comparison included $2.1 million of foreign non-income tax accrual and a $0.4 million indemnification expense; the current period included a $0.6 million Carrier Services settlement.
Outlook, risks and contingencies
- Management expected operating cash flow and cash, cash equivalents, debt securities and current equity investments held at October 31, 2020 to cover anticipated working capital and capital expenditures for the following 12 months. Planned capital expenditures for the 12 months ending October 31, 2021 were $18–20 million. No earnings or revenue guidance was provided.
- Management described COVID-19’s effects as mixed: digital consumer transactions increased, UCaaS sales rebounded in Latin America and remained strong in the U.S. and Canada, while the pandemic accelerated the decline in Carrier Services. Management cautioned that prolonged unemployment, weaker economic activity and unfavorable foreign exchange conditions could reduce demand.
- Management expects Carrier Services revenue and minutes to continue declining amid migration from international voice calling to digital collaboration, while focusing on economics rather than maintaining volume. net2phone-UCaaS launched in Peru and planned further coverage expansion in Brazil.
- Accrued expenses included $40.3 million of FCC-related regulatory fees for the audited year and other periods. USAC had invoiced $2.9 million for the Telecommunications Relay Services Fund and $1.8 million for the Universal Service Fund; IDT was appealing preliminary findings and did not intend to pay unless its appeal failed.
- Other matters include a pending Straight Path stockholder class and derivative action for which potential liability could not be estimated; a California employment class action also has no estimable liability. The filing discusses possible sales-tax exposure following the Wayfair decision and an FCC investigation related to former subsidiary Straight Path Spectrum. Performance bonds outstanding were $18.0 million.
- IDT identified Brexit as a risk to U.K. and European operations. IDT Financial Services’ Gibraltar banking passport rights were expected to cease after the transition period; the company was seeking an EU e-money license and described contingency measures, with successful implementation not assured.
- On December 7, 2020, after quarter-end, IDT paid $5.0 million for Rafael Holdings shares and warrants. Management also noted a pending review of whether a no-deal Brexit could disrupt services to customers in the European Economic Area.
Important facts for investors to verify
- Whether Fintech and UCaaS growth and improving segment economics can continue, and whether they can offset structural declines in Carrier Services.
- How much of reported liquidity is freely deployable, given restricted customer funds, other unavailable cash and the company’s narrow $5.4 million working-capital surplus.
- The outcome and potential cash impact of the USAC audit, FCC-related fees, Straight Path litigation, sales-tax exposure and other unresolved legal or regulatory matters.
- Progress toward replacing the expired credit facility and the funding of planned $18–20 million capital expenditures, share repurchases and strategic investments.
- The execution and financial effects of Brexit contingencies for IDT Financial Services and the company’s U.K./European business.