IDT Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended April 30, 2020; comparative periods ended April 30, 2019. Amounts below are in millions of dollars unless noted. IDT reports Telecom & Payment Services and net2phone.
Financial performance
| Metric | Three months 2020 | Three months 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $321.3 | $341.3 | $985.4 | $1,053.0 |
| Income from operations | $3.8 | $0.4 | $3.7 | $0.2 |
| Net income (loss) attributable to IDT | $0.5 | $2.2 | $(0.1) | $(1.4) |
| Basic and diluted EPS | $0.02 | $0.08 | $(0.00) | $(0.06) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(70.6) | $47.4 |
Quarterly revenue declined 5.8%; nine-month revenue declined 6.4%. Operating income improved in both comparisons, while quarterly attributable income fell year over year. Nine-month results remained slightly loss-making at the parent level.
Telecom & Payment Services generated $308.8 million of quarterly revenue, down 6.1%, and $947.3 million for nine months, down 7.0%. Its operating income rose to $9.9 million for the quarter from $4.2 million and to $21.4 million for nine months from $12.6 million. Direct costs were 82.9% of segment revenue for the quarter and 83.6% year to date, improving from 85.0% and 85.3%.
Within that segment, quarterly Carrier Services revenue fell 27.8% and BOSS Revolution Calling fell 7.4%; Mobile Top-Up rose 26.0%, and Growth initiatives rose 92.0%. net2phone revenue increased 1.0% for the quarter and 10.7% year to date, but its operating loss widened to $3.9 million for the quarter and $10.5 million for nine months. UCaaS revenue grew, while Platform Services revenue declined.
Cash, liquidity and obligations
- At April 30, cash and cash equivalents were $51.8 million and restricted cash was $114.7 million. Debt securities were $12.9 million and current equity investments $5.7 million. Management cited $70.5 million of cash, cash equivalents, debt securities and current equity investments; some cash held by IDT Payment Services is unavailable for general purposes.
- Working capital was negative $16.6 million. Current liabilities included $114.1 million of customer deposits, primarily associated with the Gibraltar-based bank.
- Cash, cash equivalents and restricted cash totaled $166.5 million, down $90.7 million since July 31, 2019. Operating cash outflow of $70.6 million included a $67.3 million decrease in bank customer deposits. Investing outflow was $22.8 million; financing outflow was $1.3 million.
- No amount was outstanding on the $25 million revolving credit facility at April 30, 2020. It was secured by substantially all of IDT Telecom’s assets and scheduled to mature July 15, 2020. A $10 million PPP loan received April 20 was returned April 29.
- Management said liquidity and capital resources were sufficient for the foreseeable future. Planned capital expenditures for the 12 months ending April 30, 2021 were $14 million to $16 million.
Outlook, risks and unusual items
- COVID-19 had mixed effects: digital-channel demand supported Mobile Top-Up and money transfer and slowed the decline in calling; retailer and channel sales weakened in March and April, Carrier Services was hurt by reduced global commerce, and net2phone-UCaaS customer growth slowed. Management said conditions remained fluid and did not provide earnings guidance.
- Management warned that prolonged unemployment, weaker economic activity and adverse foreign-exchange conditions could reduce demand and adversely affect results, cash flows and financial condition. It also identified potential bad debts, lower retailer activity, staffing constraints and asset impairment risks.
- Other operating expense included Straight Path class-action legal fees, partly offset by insurance proceeds; net2phone recorded indemnification-related credits/expense. The prior-year comparison included an $8.0 million accrual for non-income taxes at a foreign subsidiary, allocated across prior quarters and described as not material to those previously issued quarterly statements.
- A $40.0 million accrual for FCC-related regulatory fees was included in accrued expenses while the 2017 FCC Form 499-A was under audit. The filing also identifies potential sales/use-tax exposure following the Wayfair decision, purchase commitments of $8.7 million, and $18.0 million of performance bonds.
- Several legal matters remained unresolved, including the Straight Path stockholder litigation; the company said it could not estimate potential liability for certain claims. It intended to defend the matters.
- Disclosure controls were deemed ineffective due to a material weakness in management review controls for non-income taxes at a foreign entity. Remediation was underway, and management planned further testing. The company also disclosed Brexit-related uncertainty, including the risk that IDT Financial Services could lose EU market access without an appropriate license.
Key facts for investors to verify
- How much reported cash is restricted or otherwise unavailable, and whether the working-capital deficit and decline in customer deposits affect operating liquidity.
- Whether the operating cash outflow is primarily timing-related to Gibraltar bank deposits and how cash generation develops in subsequent periods.
- Trends in Carrier Services and BOSS Revolution Calling relative to growth in Mobile Top-Up, money transfer, Growth initiatives and UCaaS.
- Status and potential exposure from the $40.0 million regulatory-fee accrual, sales-tax assessments and outstanding litigation.
- Remediation and testing of the tax-control material weakness, and the status of the revolving facility at its July 15, 2020 maturity and IDT Financial Services’ EU licensing plans.