IDT Corporation — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended January 31, 2022; unaudited. Amounts are in U.S. dollars. IDT operates Fintech, net2phone-UCaaS, and Traditional Communications businesses.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Revenue | $337.1 million, down 0.8% year over year | $707.1 million, up 3.5% |
| Income from operations | $13.8 million, up 6.9% | $27.6 million, up 5.4% |
| Net income attributable to IDT | $7.5 million, down 42.9%; diluted EPS $0.28 vs. $0.51 | $5.0 million, down 76.6%; diluted EPS $0.19 vs. $0.83 |
| Operating cash flow | Not separately provided for the quarter | $11.7 million vs. $25.6 million |
| Cash flow from investing / financing | Not separately provided for the quarter | Investing: $(14.9) million; financing: $1.8 million |
Consolidated direct costs were 76.3% of revenue for the quarter and 77.6% for the six months, versus 79.2% and 79.4%, respectively, in the comparable periods. Operating margins were approximately 4.1% and 3.9%, respectively.
- Segment trends: Fintech revenue rose 24.8% for the quarter and 18.3% for six months, but the segment reported a small operating loss for both periods. NRS growth was strong: revenue increased 104% for the quarter, active POS terminals rose 37% to 16,500, and payment processing accounts increased 105% to 8,000. BOSS Revolution Money Transfer revenue declined.
- net2phone-UCaaS revenue increased 24.6% for the quarter and 28.6% for six months; seats served rose 35% to 258,000. The segment remained loss-making, with operating losses of $2.9 million for the quarter and $7.1 million for six months.
- Traditional Communications revenue declined 3.2% for the quarter but rose 1.8% for six months. Mobile Top-Up grew, while BOSS Revolution Calling and Carrier Services contracted. Segment operating income increased to $19.9 million for the quarter and $40.0 million for six months.
Liquidity, debt, and balance sheet
- At January 31, 2022, cash and cash equivalents were $104.3 million, restricted cash $116.3 million, debt securities $15.5 million, and current equity investments $28.5 million. Management reported $148.3 million of cash, cash equivalents, debt securities, and current equity investments, and working capital of $59.6 million.
- Restricted cash included $112.3 million held for Gibraltar bank customer deposits; an additional $11.8 million of cash held by U.S. money-transfer subsidiaries was treated as unavailable for other purposes.
- Total current liabilities were $327.4 million. IDT reported no revolver borrowings at period-end; its subsidiary had a $25 million revolving facility and borrowed and repaid $2.5 million during January. The facility is secured and subject to financial covenants, which the subsidiary was complying with. Operating lease liabilities totaled $7.4 million.
- Total assets were $505.9 million and total equity was $163.0 million. Cash, cash equivalents, and restricted cash together decreased $6.4 million during the six months.
Material changes, outlook, and risks
- Six-month net income was materially affected by $17.4 million of net investment losses, mainly unrealized losses on Rafael Holdings shares, compared with net investment gains of $0.4 million a year earlier. Operating income increased, but this investment item and equity-method investee losses weighed on earnings.
- Management expected available resources and operating cash flow to cover anticipated working-capital and capital-expenditure needs for the 12 months ending January 31, 2023. Expected capital expenditures for that period were $18–20 million.
- Management was preparing for a potential net2phone cloud communications spin-off, with a goal of completing it by July 31, 2022. Completion was not assured and any transaction could reduce IDT’s resources.
- After quarter-end, IDT acquired Leaf Global Fintech for up to $6.05 million and net2phone acquired Integra CCS for up to $15.0 million, including contingent consideration.
- Risks include a pending Straight Path shareholder class action; the company said potential liability could not be estimated. A California employment matter settled without material financial effect. A USAC audit remains pending: the company had been invoiced $4.7 million and accrued $37.6 million in FCC-related regulatory fees across the audited and other periods. Potential sales/use-tax assessments and an FCC investigation relating to former subsidiary Straight Path Spectrum are also disclosed.
- The filing identifies potential disruption to research and development from Belarus/Ukraine developments and sanctions, and continuing regulatory and economic uncertainty related to Brexit. COVID-19 effects were described as mixed. IDT said it expected Carrier Services’ minutes and revenue to continue declining amid migration from traditional voice calling.
- Investments in debt and equity securities totaled $52.3 million, or 10.3% of assets, and are exposed to market-price volatility. No material change to previously disclosed risk factors was reported apart from the Belarus/Ukraine and Brexit updates.
Most important facts for investors to verify
- Whether operating cash flow improves and capital expenditures remain within the $18–20 million estimate, bearing in mind that much reported cash is restricted or otherwise unavailable.
- The extent to which investment-value fluctuations continue to affect reported earnings, particularly Rafael Holdings exposure.
- Progress and economics of the proposed net2phone spin-off and the post-quarter acquisitions, including contingent payments.
- Developments in the Straight Path litigation, USAC audit and regulatory-fee accrual, and potential sales-tax or FCC liabilities.
- Whether growth in NRS and net2phone offsets ongoing declines in legacy calling and Carrier Services.