IDT CORP quarterly report, Q3 FY2024

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IDT Corporation — Form 10-Q Summary

Reporting period: Fiscal third quarter and first nine months ended April 30, 2024. Financial amounts below are in millions of dollars unless stated otherwise. Comparisons are with the corresponding 2023 periods.

Business context

IDT operates four reportable segments: National Retail Solutions (NRS), Fintech, net2phone, and Traditional Communications. Traditional Communications remains the largest segment, contributing 74% of quarterly revenue. IDT owned 94.0% of net2phone 2.0 and 81.2% of NRS at quarter-end.

Financial performance and liquidity

  • Quarterly revenue: $299.6, essentially flat year over year. Gross profit rose to $97.0 from $87.6; gross margin increased to 32.4% from 29.3%.
  • Quarterly earnings: Operating income was $11.4, up 10.2%. Net income attributable to IDT was $5.6, down 19.4%, and diluted EPS was $0.22 versus $0.27. Higher other expense, principally foreign-exchange losses, contributed to the decline.
  • Nine-month results: Revenue declined 4.1% to $896.9, while gross profit increased 8.0% to $288.0 and gross margin rose to 32.1% from 28.5%. Operating income decreased 8.5% to $44.6; net income attributable to IDT fell 15.0% to $27.6. Diluted EPS was $1.09 versus $1.27.
  • Cash flow: Nine-month operating cash flow was $49.3, compared with $28.7. Investing activities used $1.3, versus $26.1; financing activities used $8.4, versus $9.7. Cash, cash equivalents, and restricted cash totaled $232.8 at April 30, up $34.0 from July 31, 2023.
  • Liquidity: Management reported $174.0 of cash, cash equivalents, debt securities, and current equity investments, and working capital of $130.7. Management expects these resources and operating cash flow to cover anticipated working capital and capital expenditure needs for the 12 months ending April 30, 2025. Some cash is restricted or unavailable for general use, including $84.5 held for bank customer deposits and $42.2 held by U.S. money-transfer subsidiaries.
  • Debt: No balance was outstanding on the $25.0 revolving credit facility at April 30, 2024. The company borrowed and repaid $32.9 under it during the nine months and reported compliance with its covenants. The facility is secured by substantially all of IDT Telecom’s assets and matures May 16, 2026.
  • Capital returns and investment: IDT initiated a quarterly $0.05-per-share dividend and paid $1.3 during the period. It repurchased $5.7 of Class B shares under its program, with 4.5 million shares remaining authorized for repurchase. Capital expenditures were $13.6 in the nine months.

Material changes and segment trends

  • NRS: Quarterly revenue grew 42.3% to $25.7, with operating income rising to $4.8 from $2.1. Active POS terminals increased 27% and payment processing accounts 38%. Growth was driven by merchant services and network expansion.
  • Fintech: Revenue increased 44.7% to $31.5, led by BOSS Money, whose revenue rose 41.9% on higher retail and digital transaction volumes. The segment still recorded an operating loss of $0.6 for the quarter; nine-month operating loss widened to $2.7.
  • net2phone: Quarterly revenue rose 12.4% to $20.7, subscription revenue increased 17.1%, and seats served grew 13% to 384,000. The segment returned to quarterly operating income of $0.5; nine-month operating income was $0.8 versus a $2.0 loss.
  • Traditional Communications: Quarterly revenue declined 8.0% to $221.7 and nine-month revenue declined 11.5% to $675.0. BOSS Revolution Calling and IDT Global revenue and usage fell; IDT Digital Payments was nearly flat for the quarter but lower year to date. Segment operating income declined 3.5% for the quarter and 10.0% year to date.
  • Consolidated expense and unusual items: Quarterly SG&A increased to $69.0 from $60.1. Straight Path class-action legal fees were $3.2 in the quarter and $5.9 for nine months, partly offset by insurance recoveries of $0 and $2.9, respectively. The Delaware court dismissed all claims against IDT in October 2023; the filing notes a potential appeal period following entry of the final order. The $3.9 cable-customer indemnification expense recorded in 2023 did not recur.
  • Presentation changes: IDT began presenting gross profit and including depreciation and amortization in expense captions from August 2023, and reclassified most technology and development costs from SG&A beginning February 2024. Prior-period amounts were recast for comparison; reported expense-category trends should be read with these changes in mind.

Outlook, risks, and contingencies

  • IDT anticipates capital expenditures of $17.5–$20.0 for the 12 months ending April 30, 2025. Management is considering spin-offs or other dispositions of subsidiaries, but completion is not assured; such transactions could reduce parent-company resources.
  • Management expects continued pressure on Traditional Communications: unlimited mobile calling and internet-based communication alternatives weigh on BOSS Revolution Calling, while the global shift from international voice calling is expected to continue affecting IDT Global.
  • Foreign currency losses were $2.3 in the quarter and $3.3 for nine months, versus gains in the 2023 comparable periods. Management says currency exposure is partly offset by expenses in the same currencies and that net period-end exposure is generally not material.
  • Potential obligations not included in the contractual-payment schedule include up to $10.0 for redemption of NRS shares, $29.0 of performance bonds, and up to $6.2 of contingent acquisition consideration. Purchase commitments were $3.2.
  • IDT is appealing a $2.9 USAC assessment for the federal Telecommunications Relay Service Fund and says it does not intend to pay unless the appeal is unsuccessful. Accrued expenses included $23.8 of FCC-related regulatory fees for the audit year and other years. Potential sales and similar tax exposure is also disclosed, without a clear quantified liability.
  • The filing reports no material changes to the risk factors in the 2023 Form 10-K. Disclosure controls were assessed as effective, with no material quarterly changes to internal control over financial reporting.

Most important facts for investors to verify

  • Whether growth in NRS, Fintech, and net2phone can offset continued revenue and usage declines in Traditional Communications.
  • How much of reported cash and investment balances is available to the parent after restricted and operationally unavailable cash is excluded.
  • The trajectory of foreign-exchange impacts, credit-loss provisions, and other expense, which weighed on attributable earnings despite higher gross profit.
  • The status and potential financial exposure of the USAC appeal, FCC-related accruals, sales-tax contingency, and any appeal of the Straight Path dismissal.
  • Whether contemplated spin-offs or dispositions proceed, and their effect on capital resources, alongside planned capital expenditures and shareholder returns.