IDT Corporation (NYSE: IDT) — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended January 31, 2024. Fiscal year ends July 31. Unless otherwise stated, amounts are USD millions. The interim financial statements are unaudited.
Business context and results
IDT operates four reportable segments: National Retail Solutions (NRS), Fintech (including BOSS Money), net2phone cloud communications, and Traditional Communications (digital payments, consumer calling and wholesale voice/SMS). Traditional Communications remains the largest segment but is exposed to declining international calling volumes.
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Revenue | $296.1 | $313.9 | $597.3 | $635.8 |
| Gross profit | $97.4 | $90.4 | $191.8 | $179.6 |
| Gross margin | 32.9% | 28.8% | 32.1% | 28.2% |
| Operating income | $16.0 | $18.2 | $33.2 | $38.4 |
| Net income attributable to IDT | $14.4 | $14.6 | $22.1 | $25.6 |
| Diluted EPS | $0.57 | $0.57 | $0.87 | $1.00 |
| Cash from operating activities | — | — | $39.7 | $35.6 |
Q2 revenue fell 5.7% year over year, while gross profit rose 7.7% and gross margin expanded about 4.1 percentage points. Operating income declined 11.9%; IDT-attributable net income declined 1.4%. For the six-month period, revenue declined 6.0%, operating income 13.6%, and IDT-attributable net income 13.8%. Comparisons reflect a presentation change: depreciation and amortization is now included in direct costs and SG&A, and prior periods were reclassified.
Segments and material changes
- NRS: Q2 revenue rose 27.2% to $25.2; operating income was $5.3, approximately flat. Recurring revenue increased 30.4%; active POS terminals rose 28% to 28,700 and payment processing accounts rose 45% to 18,200.
- Fintech: Q2 revenue increased 37.7% to $28.0, driven by BOSS Money growth of 41.9%. The segment recorded an operating loss of $0.7, versus a loss of $0.8 a year earlier; gross margin declined to 57.5% from 60.4%.
- net2phone: Q2 revenue increased 14.4% to $20.4, with subscription revenue up 18.5% and seats served up 15% to 375,000. The segment returned to operating income of $0.4 from a $0.6 loss.
- Traditional Communications: Q2 revenue declined 13.1% to $222.5 and operating income fell 14.0% to $14.6. BOSS Revolution Calling revenue fell 19.5% and minutes of use fell 22.8%; IDT Global revenue fell 16.9% and minutes declined 13.7%. IDT Digital Payments revenue fell 6.1%. Management cited a deteriorating international corridor and continued industry shifts from voice calling to wireless plans and online communication services.
Financial position, cash flow and capital
- At January 31, cash and cash equivalents were $141.1; restricted cash was $93.2; debt securities were $31.4; and current equity investments were $5.1. Management reported $177.6 of cash, cash equivalents, debt securities and current equity investments, and working capital of $122.5. Current assets were $407.6 and current liabilities $285.0.
- Restricted cash includes funds safeguarded for IDT Financial Services customer deposits. An additional $39.8 of cash held by IDT’s U.S. money-transfer entities was considered substantially restricted and unavailable for other purposes.
- Six-month operating cash flow was $39.7. Investing activities provided $1.9, including proceeds from security maturities and sales exceeding purchases; financing activities used $3.0. Cash, cash equivalents and restricted cash increased $35.5 to $234.3.
- No revolving-credit borrowings were outstanding at quarter-end. The facility provides up to $25.0; IDT borrowed and repaid $30.6 in aggregate during the six months and reported covenant compliance. The facility is secured by primarily all IDT Telecom assets.
- Six-month capital expenditures were $8.9; management expects $21–$23 of capital expenditures in the twelve months ending January 31, 2025. The company repurchased $3.2 of Class B shares during the six months; 4.6 million shares remained authorized for repurchase at January 31.
Outlook, risks and unusual items
- Management expects operating cash flow and the January 31 balance of cash and specified investments to cover anticipated working-capital and capital-expenditure needs for the twelve months ending January 31, 2025. No specific earnings or revenue guidance is provided. Management is considering potential spin-offs or other dispositions, but says completion is not assured and a transaction could reduce capital resources.
- In March 2024, after the quarter, the board initiated a quarterly dividend of $0.05 per share, with the first payment expected on or about March 27, supplementing the repurchase program.
- Accrued expenses included $23.4 of FCC-related regulatory fees at January 31, covering the audited year and other periods. A $2.9 Federal TRS Fund charge is under appeal; the company says it will not pay unless and until the appeal is decided adversely.
- The company disclosed $17.6 of purchase commitments, $29.0 of performance bonds, and up to $10.0 of potential NRS share redemption. The commitments table also excludes up to $7.9 of other potential payments, including acquisition-related contingent consideration.
- Potential sales/use-tax assessments could materially affect results if asserted successfully. The Straight Path stockholder class action was dismissed as to IDT in October 2023; the filing notes plaintiffs could appeal within 30 days of entry of the final order. Management says other ordinary-course proceedings are not expected to have a material adverse effect.
- Other notable items include $2.5 of Q2 stock-based compensation (up from $1.3), partly related to executive equity awards and a contingent bonus; a $0.7 Q2 net gain on investments versus a loss a year earlier; and $3.1 of six-month net other expense, including foreign-currency losses and equity-method investee losses. The company adopted the expected-credit-loss standard in August 2023 with no material impact.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no material changes to the risk factors in its prior annual report.
Important facts for investors to verify
- Whether growth in NRS, BOSS Money and net2phone can offset continued contraction in Traditional Communications, and whether segment operating profitability improves.
- How much of reported cash and investments is practically available, given safeguarded customer funds and cash treated as substantially restricted.
- Progress and potential outcome of the FCC regulatory-fee appeal, any sales-tax exposure, and any appeal in the dismissed Straight Path case.
- Whether projected capital spending, potential strategic transactions, the new dividend and continued buybacks remain consistent with liquidity and investment needs.
- The effect of foreign-currency movements, investment valuations and the equity-method investee’s losses on future earnings.