IDT Corporation — FY2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended July 31, 2022, with comparison to FY2021. IDT operates fintech businesses (NRS and BOSS Money), net2phone cloud communications, and Traditional Communications (Mobile Top-Up, BOSS Revolution Calling, IDT Global, and other businesses). Traditional Communications remained the largest segment, at 87.7% of revenue. Segment comparisons were restated for a business reclassification to net2phone.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $1,364.1 million | $1,447.0 million |
| Income from operations | $60.1 million; 4.4% of revenue | $57.0 million; 4.0% of revenue |
| Net income attributable to IDT | $27.0 million | $96.5 million |
| Diluted earnings per share | $1.03 | $3.70 |
| Cash provided by operating activities | $29.4 million | $66.6 million |
| Cash, cash equivalents, debt securities, and current equity investments | $137.7 million | Not stated here on a comparable basis |
| Working capital | $57.6 million | Not stated here |
Direct costs were 75.8% of revenue, versus 79.8% in FY2021, supporting improved operating margin despite lower sales. Cash, cash equivalents, and restricted cash totaled $189.6 million at year-end; however, $91.2 million was classified as restricted, and the company also treats $17.3 million held by its U.S. money-transfer subsidiaries as unavailable for general purposes. IDT had no borrowings outstanding under its $25 million revolving credit facility at July 31, 2022. Total liabilities were $316.3 million; the filing does not present conventional funded debt as a material year-end balance.
- Fintech: Revenue rose 46.3% to $108.8 million; operating income improved to $5.3 million from a $1.5 million loss. NRS revenue increased 107% to $51.3 million, with 19,400 active POS terminals and 10,300 payment-processing accounts. BOSS Money revenue increased 15.9% to $57.5 million.
- net2phone: Revenue increased 30.7% to $58.2 million, while operating loss narrowed to $11.1 million from $15.5 million. Subscription revenue rose 38% to $53.6 million; seats served increased 29% to 291,000, including about 7,000 from Integra.
- Traditional Communications: Revenue declined 9.9% to $1,197.1 million and operating income fell 7.9% to $74.8 million. Mobile Top-Up revenue rose 2.5% to $473.2 million, while BOSS Revolution Calling fell 14.8% to $387.9 million and IDT Global fell 19.0% to $292.4 million.
Material changes and unusual items
- Consolidated revenue declined 5.7%, while operating income increased 5.4%. Lower traditional voice and wholesale volumes outweighed growth in fintech and cloud communications.
- Net income attributable to IDT fell to $27.0 million, largely reflecting a $25.4 million net other expense, including $19.3 million in investment losses. FY2021 included $7.9 million of other income and a $31.7 million income-tax benefit, including a $46.5 million release of deferred-tax valuation allowance; these items make the year-over-year net-income comparison less indicative of operating trends.
- Operating cash flow decreased to $29.4 million, with higher receivables and lower customer deposits among the reported cash-flow factors. Gross trade receivables rose 37.4% to $70.2 million.
- IDT acquired Integra CCS for net cash of approximately $7.1 million, plus stock and potential future consideration, and acquired Leaf Global Fintech. It also acquired a majority interest in Sochitel in FY2021. The Integra and Leaf businesses’ FY2022 contributions were not significant, according to the filing.
- The company repurchased 554,744 Class B shares for $13.4 million under its repurchase program and paid no dividends. FY2022 investing cash use was $33.8 million and financing cash use was $15.6 million; cash, cash equivalents, and restricted cash declined by $37.4 million, including a $17.4 million adverse exchange-rate effect.
Outlook, risks, and contingencies
Management expected operating cash flow and financial resources held at July 31, 2022 to be sufficient for anticipated FY2023 working-capital and capital-expenditure needs. Planned FY2023 capital expenditures were $19–$21 million. No specific revenue or earnings guidance was provided. Management expects growth in higher-margin fintech and net2phone offerings to improve the business mix, while acknowledging continuing pressure on traditional communications.
- Traditional voice and wholesale businesses face substitution by free or low-cost internet communications and unlimited calling plans, intense price competition, and declining traffic. Management expects IDT Global minutes and revenue to continue declining.
- Key operational risks include cybersecurity and service interruptions, third-party supplier dependence, foreign-exchange exposure, and geopolitical disruption to R&D operations in Belarus amid the Russia-Ukraine conflict.
- Fintech operations face money-transmitter, anti-money-laundering, consumer-protection, privacy, and payment-network compliance risks. At year-end the company held money-transmitter licenses in 48 of 49 states requiring them, plus Washington, D.C.
- A USAC audit of the company’s 2017 FCC Form 499-A remained unresolved. Accrued expenses included $33.2 million for FCC-related regulatory fees; the filing says the company was appealing preliminary findings and had not paid $4.7 million in invoices pending an adverse decision.
- A Straight Path-related class action proceeded to trial, with further proceedings scheduled for December 2022; IDT said it could not estimate potential liability. The company also disclosed possible sales-tax exposure following the Wayfair decision and other ordinary-course legal matters.
- The company reported effective disclosure controls and internal control over financial reporting; its auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Whether NRS and net2phone can sustain growth and improve profitability, and whether the Integra and Leaf acquisitions deliver expected benefits.
- Whether declining BOSS Revolution Calling and IDT Global revenues and volumes are offset by higher-margin digital and fintech growth.
- How much of reported liquidity is freely deployable, given restricted cash, money-transfer balances, and customer deposits.
- The eventual outcome and potential financial impact of the USAC regulatory-fee audit, the Straight Path litigation, and sales-tax assessments.
- The sustainability of operating cash flow and the impact of receivables growth, investment volatility, and foreign-exchange movements.