IDT Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended January 31, 2023. Amounts are in U.S. dollars; financial statement figures below are in millions except per-share data. Comparisons are with the corresponding prior-year periods.
Business context
IDT reports four segments: Fintech, National Retail Solutions (NRS), net2phone, and Traditional Communications. Traditional Communications remains the largest segment, while Fintech, NRS, and net2phone are growing. Segment presentation was revised effective August 1, 2022; prior-period segment figures were recast.
Key financial results
| Metric | Three months ended Jan. 31, 2023 | Three months ended Jan. 31, 2022 | Six months ended Jan. 31, 2023 | Six months ended Jan. 31, 2022 |
|---|---|---|---|---|
| Revenue | $313.9 | $337.1 | $635.8 | $707.1 |
| Gross profit (revenue less direct costs) | $91.5 | $79.7 | $181.7 | $158.2 |
| Gross margin | 29.2% | 23.7% | 28.6% | 22.4% |
| Operating income | $18.2 | $13.8 | $38.4 | $27.6 |
| Net income attributable to IDT | $14.6 | $7.5 | $25.6 | $5.0 |
| Diluted EPS | $0.57 | $0.28 | $1.00 | $0.19 |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $35.6 | $11.7 |
Revenue declined 6.9% in the quarter and 10.1% year to date, while gross and operating margins improved. The filing attributes improved earnings in part to lower investment losses than in the prior year and higher foreign-currency transaction gains in the quarter.
- Segment performance: Quarterly revenue increased 39% in Fintech to $20.3 million, 87% in NRS to $19.8 million, and 32% in net2phone to $17.8 million. NRS generated $5.4 million of operating income; Fintech and net2phone had operating losses of $0.8 million and $0.6 million, respectively.
- Traditional Communications: Revenue fell 14% to $256.0 million and operating income declined 15% to $17.0 million. Mobile Top-Up, BOSS Revolution Calling, and IDT Global revenues fell; management cited a deteriorating key Mobile Top-Up corridor and ongoing substitution away from traditional voice calling.
- Cash and liquidity: At January 31, cash and cash equivalents were $117.8 million, restricted cash was $89.9 million, debt securities were $29.8 million, and current equity investments were $9.2 million. Management reported $156.8 million in cash, cash equivalents, debt securities, and current equity investments and working capital of $85.6 million. Current assets were $373.5 million and current liabilities were $287.9 million.
- Cash flow and capital allocation: Six-month investing cash outflow was $11.2 million and financing cash outflow was $7.1 million. Capital expenditures were $10.6 million. IDT repurchased $5.0 million of Class B stock under its program; $5.0 million of shares remained available for repurchase at period-end.
- Debt and obligations: No balance was outstanding on the $25 million revolving credit facility at January 31, 2023. The company reported $7.2 million of operating lease liabilities. It also had $5.9 million of purchase commitments and $24.2 million of performance bonds.
Outlook, risks and unusual items
- Management said operating cash flow and available cash, cash equivalents, debt securities, and current equity investments were expected to cover anticipated working capital and capital expenditure needs for the twelve months ending January 31, 2024. Planned capital expenditures for that period were $20 million to $22 million. No specific revenue or earnings guidance was provided.
- Management is considering spin-offs or other dispositions of certain subsidiaries and strategic investments or acquisitions; completion of any transaction is not assured. A spin-off could reduce IDT’s capital resources.
- The Straight Path shareholder class action remained pending after trial, with post-trial briefing underway and closing statements scheduled for May 2023. IDT said it could not estimate potential liability. The company also intends to appeal a $2.9 million Federal Telecommunications Fund audit charge; it had accrued $31.4 million for FCC-related regulatory fees covering the audited year and other years.
- Other disclosed exposures include possible sales and similar tax claims, contingent consideration and a possible NRS share redemption of up to $10 million. The filing does not quantify potential liability for the principal legal matters.
- Reported results included $1.6 million of year-to-date gain from writing off Leaf acquisition contingent consideration and $0.4 million of Leaf government grant payments. The quarter also included $2.5 million of foreign-currency transaction gains. IDT continued to incur legal costs on the Straight Path case, partly offset by insurance claims.
- Management identified continuing declines in traditional calling and IDT Global usage, investment-value volatility, foreign currency exposure, and uncertainty around COVID-19 impacts. It reported effective disclosure controls and no material changes in internal control during the quarter.
Most important facts for investors to verify
- Whether growth and operating improvement in NRS, Fintech, and net2phone can offset ongoing Traditional Communications revenue declines.
- How much of earnings improvement reflects sustainable operations versus investment marks, currency gains, grants, and contingent-consideration adjustments.
- The status and potential financial impact of the Straight Path litigation and the appeal of the $2.9 million regulatory-fee assessment.
- How much reported cash and investment liquidity is available for general corporate purposes, given safeguarded customer funds and other restricted or operationally unavailable cash.
- Actual capital spending, any subsidiary spin-off or disposition plans, and the timing or amount of potential NRS redemption and other contingent obligations.