IDT(IDT) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents IDT Corporation's unaudited consolidated financial statements, including balance sheets, statements of operations, comprehensive income, equity, and cash flows, with detailed explanatory notes for the period ended October 31, 2020 Consolidated Balance Sheets The consolidated balance sheets show a slight increase in total assets and a decrease in total liabilities, leading to an increase in total equity from July 31, 2020, to October 31, 2020 | Metric | Oct 31, 2020 (in thousands) | Jul 31, 2020 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $74,082 | $84,860 | | Restricted cash and cash equivalents | $114,046 | $116,362 | | Equity investments (current) | $21,036 | $5,964 | | Total current assets | $325,282 | $322,132 | | Total assets | $405,946 | $404,750 | | Total current liabilities | $319,867 | $324,870 | | Total liabilities | $328,363 | $333,611 | | Total equity | $77,583 | $71,139 | Consolidated Statements of Operations The company reported a significant turnaround from a net loss in the three months ended October 31, 2019, to net income in the same period of 2020, driven by increased revenues and a substantial improvement in income from operations | Metric | Three Months Ended Oct 31, 2020 (in thousands) | Three Months Ended Oct 31, 2019 (in thousands) | | :------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Revenues | $343,425 | $340,200 | | Total costs and expenses | $329,920 | $338,817 | | Income (loss) from operations | $13,253 | $(1,392) | | Net income (loss) attributable to IDT Corporation | $8,288 | $(1,513) | | Basic EPS | $0.32 | $(0.06) | | Diluted EPS | $0.32 | $(0.06) | Consolidated Statements of Comprehensive Income (Loss) The company achieved comprehensive income of $8.6 million for the three months ended October 31, 2020, a significant improvement from a comprehensive loss of $2.6 million in the prior year | Metric | Three Months Ended Oct 31, 2020 (in thousands) | Three Months Ended Oct 31, 2019 (in thousands) | | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net income (loss) | $8,415 | $(1,422) | | Other comprehensive income (loss) | $222 | $(1,204) | | Comprehensive income (loss) | $8,637 | $(2,626) | Consolidated Statements of Equity Total equity increased by $6.4 million from July 31, 2020, to October 31, 2020, primarily driven by net income and other comprehensive income, partially offset by repurchases of Class B common stock | Metric | Balance at Oct 31, 2020 (in thousands) | Balance at Jul 31, 2020 (in thousands) | | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Total IDT Corporation stockholders' equity | $81,117 | $74,772 | | Noncontrolling interests | $(3,534) | $(3,633) | | Total Equity | $77,583 | $71,139 | - The company repurchased 463,792 shares of Class B common stock for an aggregate purchase price of $2.8 million during the three months ended October 31, 2020[16] Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $18.8 million in Q1 2020 from a net cash used of $5.0 million in Q1 2019, despite increased investing activities leading to an overall net decrease in cash | Metric | Three Months Ended Oct 31, 2020 (in thousands) | Three Months Ended Oct 31, 2019 (in thousands) | | :------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by (used in) operating activities | $18,767 | $(4,977) | | Net cash used in investing activities | $(27,263) | $(11,264) | | Net cash (used in) provided by financing activities | $(2,739) | $17 | | Net decrease in cash, cash equivalents, and restricted cash and cash equivalents | $(13,094) | $(4,798) | | Cash, cash equivalents, and restricted cash and cash equivalents at end of period | $188,128 | $252,401 | Notes to Consolidated Financial Statements These notes provide detailed explanations and disclosures for the consolidated financial statements, covering accounting policies, business segments, revenue recognition, and other financial details Note 1—Basis of Presentation The unaudited interim consolidated financial statements are prepared in accordance with U.S. GAAP and SEC regulations, and the operating results for the three months ended October 31, 2020, are not necessarily indicative of the full fiscal year ending July 31, 2021 - The company's fiscal year ends on July 31 of each calendar year[24] - Interim financial statements are unaudited and do not include all information and notes required by U.S. GAAP for complete financial statements[23] Note 2—Business Segment Information Effective August 1, 2020, the company revised its reportable business segments to Fintech, net2phone-UCaaS, and Traditional Communications, reflecting the growth and increased contributions of its financial technology and cloud communications businesses - Company revised reportable business segments to Fintech, net2phone-UCaaS, and Traditional Communications, effective August 1, 2020[25] - Fintech segment comprises BOSS Revolution Money Transfer and National Retail Solutions (NRS)[27] - Traditional Communications segment includes BOSS Revolution Calling, Mobile Top-Up, Carrier Services, and net2phone-Platform Services[29] | Segment | 2020 Revenues (in thousands) | 2020 Income (loss) from operations (in thousands) | 2019 Revenues (in thousands) | 2019 (Loss) income from operations (in thousands) | | :--------------------- | :--------------------------- | :------------------------------------------------ | :--------------------------- | :------------------------------------------------ | | Fintech | $20,087 | $3,136 | $9,557 | $(2,670) | | net2phone-UCaaS | $9,628 | $(3,806) | $7,207 | $(3,708) | | Traditional Communications | $313,710 | $15,787 | $323,436 | $7,487 | | Corporate | $— | $(1,864) | $— | $(2,501) | | Total | $343,425 | $13,253 | $340,200 | $(1,392) | Note 3—Revenue Recognition The company's revenue is primarily recognized at a point in time for most services, with net2phone-UCaaS having some revenue recognized over time, with significant streams from BOSS Revolution Calling, Mobile Top-Up, and Carrier Services - The company's most significant revenue streams are from BOSS Revolution Calling, Mobile Top-Up, and Carrier Services[32] | Service | 2020 (in thousands) | 2019 (in thousands) | | :---------------------- | :------------------ | :------------------ | | BOSS Revolution Money Transfer | $15,157 | $7,202 | | National Retail Solutions | $4,930 | $2,355 | | net2phone-UCaaS | $9,628 | $7,207 | | Mobile Top-Up | $95,785 | $76,815 | | BOSS Revolution Calling | $116,231 | $116,242 | | Carrier Services | $87,775 | $113,517 | | Other | $13,919 | $16,862 | | Total | $343,425 | $340,200 | | Metric | Oct 31, 2020 (in thousands) | Jul 31, 2020 (in thousands) | | :---------------------------------------------------- | :-------------------------- | :-------------------------- | | Deferred customer contract acquisition costs (current) | $2,734 | $2,350 | | Deferred customer contract acquisition costs (noncurrent) | $2,581 | $2,384 | | Total | $5,315 | $4,734 | Note 4—Leases The company's leases primarily consist of operating leases for office space, with terms ranging from one to five years, and an aggregate operating lease liability of $9.7 million at October 31, 2020 | Metric | 2020 (in thousands) | 2019 (in thousands) | | :------------------ | :------------------ | :------------------ | | Operating lease cost | $729 | $711 | | Short-term lease cost | $65 | $58 | | Total lease cost | $794 | $769 | | Metric | Oct 31, 2020 (in thousands) | Jul 31, 2020 (in thousands) | | :---------------------------------------------------- | :-------------------------- | :-------------------------- | | Operating lease liabilities (current) | $2,477 | $2,350 | | Operating lease liabilities (noncurrent) | $7,193 | $7,353 | | Total | $9,670 | $9,703 | Note 5—Cash, Cash Equivalents, and Restricted Cash and Cash Equivalents Total cash, cash equivalents, and restricted cash decreased to $188.1 million at October 31, 2020, from $201.2 million at July 31, 2020, with $114.0 million restricted for customer deposits | Metric | Oct 31, 2020 (in thousands) | Jul 31, 2020 (in thousands) | | :---------------------------------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $74,082 | $84,860 | | Restricted cash and cash equivalents | $114,046 | $116,362 | | Total | $188,128 | $201,222 | - Restricted cash and cash equivalents included $114.0 million (Oct 31, 2020) and $116.3 million (Jul 31, 2020) for customer deposits held by IDT Financial Services Limited[48] Note 6—Debt Securities The fair value of available-for-sale debt securities increased to $23.9 million at October 31, 2020, from $18.4 million at July 31, 2020, primarily due to increased holdings across various debt instruments | Type | Oct 31, 2020 (in thousands) | Jul 31, 2020 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Certificates of deposit | $7,567 | $13,902 | | U.S. Treasury bills and notes | $4,171 | $2,498 (bills only) | | Corporate bonds | $6,231 | $— | | Municipal bonds | $5,921 | $1,963 | | Total | $23,890 | $18,363 | - Proceeds from maturities and sales of debt securities and redemptions of equity investments were $6.6 million in the three months ended October 31, 2020, up from $0.8 million in the prior year period[50] Note 7—Equity Investments Current equity investments significantly increased to $21.0 million at October 31, 2020, from $6.0 million at July 31, 2020, primarily driven by an increase in mutual funds and the receipt of Visa Series A Preferred shares | Type | Oct 31, 2020 (in thousands) | Jul 31, 2020 (in thousands) | | :---------------------------------------------------- | :-------------------------- | :-------------------------- | | Zedge, Inc. Class B common stock | $144 | $59 | | Rafael Holdings, Inc. Class B common stock | $465 | $389 | | Mutual funds | $20,427 | $5,516 | | Current equity investments | $21,036 | $5,964 | | Visa Inc. Series C Convertible Participating Preferred Stock | $1,825 | $3,825 | | Visa Inc. Series A Convertible Participating Preferred Stock | $2,271 | $— | | Hedge funds | $3,427 | $4,783 | | Other (noncurrent) | $2,225 | $225 | | Noncurrent equity investments | $9,748 | $8,833 | - In connection with Visa's first mandatory release assessment, the company received 125 shares of Visa Series A Preferred and the conversion adjustment for Visa Series C Preferred was reduced[54] - Net unrealized losses of $920,000 were recognized on equity investments in the three months ended October 31, 2020, compared to net gains of $26,000 in the prior year period[57] Note 8—Fair Value Measurements Total assets measured at fair value increased to $49.0 million at October 31, 2020, from $28.2 million at July 31, 2020, primarily due to an increase in Level 1 equity investments | Metric | Oct 31, 2020 (in thousands) | Jul 31, 2020 (in thousands) | | :---------------------------------------------------- | :-------------------------- | :-------------------------- | | Debt securities | $23,890 | $18,363 | | Equity investments (current) | $21,036 | $5,964 | | Equity investments (noncurrent) | $4,096 | $3,825 | | Total | $49,022 | $28,152 | - Investments in hedge funds ($3.4 million at October 31, 2020) are accounted for using the equity method and are not measured at fair value[59] Note 9—Other Operating Expense, Net Other operating expense, net, significantly improved to a net gain of $252,000 in the three months ended October 31, 2020, from a net expense of $2.8 million in the prior year, mainly due to a Carrier Services settlement and lower net legal fees | Item | 2020 (in thousands) | 2019 (in thousands) | | :---------------------------------------------------- | :------------------ | :------------------ | | Corporate—Straight Path Communications Inc. class action insurance claims net of legal fees/(legal fees net of insurance claims) | $302 | $(260) | | Traditional Communications—Carrier Services settlement | $(554) | $— | | Traditional Communications—net2phone indemnification claim | $— | $(365) | | Traditional Communications—accrual for non-income related taxes related to a foreign subsidiary | $— | $(2,150) | | Total other operating expense, net | $(252) | $(2,775) | - In the three months ended October 31, 2020, the company incurred $0.3 million in legal fees related to the Straight Path class action, offset by $0.6 million in insurance claims[67] Note 10—Equity The company repurchased 463,792 shares of Class B common stock for $2.8 million in the three months ended October 31, 2020, with 5.8 million shares remaining available under its stock repurchase program - The company repurchased 463,792 shares of Class B common stock for an aggregate purchase price of $2.8 million in the three months ended October 31, 2020[70] - At October 31, 2020, 5.8 million shares remained available for repurchase under the stock repurchase program[70] - The company received proceeds from the exercise of stock options of $0.2 million, issuing 21,894 shares of its Class B common stock in the three months ended October 31, 2020[72] Note 11—Earnings (Loss) Per Share Basic and diluted earnings per share were $0.32 for the three months ended October 31, 2020, a significant improvement from a loss of $0.06 in the prior year period | Metric | 2020 (in thousands) | 2019 (in thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Basic weighted-average number of shares | 25,534 | 26,279 | | Diluted weighted-average number of shares | 25,861 | 26,279 | - Stock options with an exercise price greater than the average market price of the company's stock (1.104 million shares) were excluded from the diluted EPS computation in the three months ended October 31, 2020[74] Note 12—Accumulated Other Comprehensive Loss The accumulated other comprehensive loss decreased to $7.188 million at October 31, 2020, from $7.410 million at July 31, 2020, primarily due to positive foreign currency translation adjustments | Metric | Balance, Oct 31, 2020 (in thousands) | Balance, Jul 31, 2020 (in thousands) | | :---------------------------------------------------- | :----------------------------------- | :----------------------------------- | | Unrealized Gain (Loss) on Available-for-Sale Securities | $13 | $42 | | Foreign Currency Translation Adjustments | $(7,201) | $(7,452) | | Accumulated Other Comprehensive Loss | $(7,188) | $(7,410) | Note 13—Commitments and Contingencies This section details various commitments and contingencies, including COVID-19 impacts, legal proceedings, sales tax liabilities, regulatory audits, and purchase commitments Coronavirus Disease (COVID-19) COVID-19 had mixed financial impacts, driving increased demand for consumer digital offerings while accelerating the decline in Carrier Services, though the company expects sufficient liquidity for the next 12 months - COVID-19 drove significant increases in demand for BOSS Revolution Money Transfer, BOSS Revolution Calling, and Mobile Top-Up through digital channels[77] - Carrier Services revenue declined more rapidly following the onset of COVID-19 as business communications shifted from calling to video conferencing[77] - Management expects cash from operations and current liquidity to be sufficient to meet anticipated working capital and capital expenditure requirements for the twelve-month period ending October 31, 2021[78] Legal Proceedings The company is involved in several legal proceedings, including class actions related to the TCPA and employment law, and a derivative complaint concerning the Straight Path spin-off - A putative class action against IDT Telecom alleging Telephone Consumer Protection Act violations was resolved for a de minimus amount in November 2020[80] - The company is evaluating claims and intends to vigorously defend against a putative class action alleging employment law violations in California[81] - A pending putative class action and derivative complaint against the company relates to the Straight Path spin-off and alleged breaches of fiduciary duties[84] Sales Tax Contingency The company is reviewing its state sales tax filings and remittance practices following the Wayfair decision, with potential for jurisdictions to assert liability for uncollected sales taxes - The company is evaluating its state tax filings with respect to the Wayfair decision and is reviewing its remittance practices, with potential for liability for uncollected sales taxes[86] Regulatory Fees Audit The company's 2017 FCC Form 499-A is under audit by USAC, with preliminary findings appealed, and accrued expenses include $40.3 million for FCC-related regulatory fees - The company's 2017 FCC Form 499-A is currently under audit by the Universal Service Administrative Company (USAC), with preliminary audit findings appealed[87] - Accrued expenses included $40.3 million at October 31, 2020, for FCC-related regulatory fees for the year covered by the audit, as well as prior and subsequent years[87] Purchase Commitments At October 31, 2020, the company had $2.5 million in purchase commitments, primarily for certain equipment and services - At October 31, 2020, the company had purchase commitments of $2.5 million primarily for certain equipment and services[88] Performance Bonds The company has aggregate performance bonds of $18.0 million outstanding through third parties to comply with state financial requirements - The company had aggregate performance bonds of $18.0 million outstanding at October 31, 2020[89] Company Restricted Cash and Cash Equivalents Unrestricted cash and cash equivalents held by IDT Payment Services, totaling $9.0 million at October 31, 2020, are treated as substantially restricted and unavailable for other purposes - Unrestricted cash and cash equivalents held by IDT Payment Services, totaling $9.0 million at October 31, 2020, are treated as substantially restricted and unavailable for other purposes[90] FCC Investigation of Straight Path Spectrum LLC The company is cooperating with an FCC investigation into potential violations by its former subsidiary, Straight Path Spectrum LLC, with potential for fines or penalties against the company - The company is cooperating with an FCC investigation into potential violations by Straight Path Spectrum LLC, a former subsidiary, with potential for fines or penalties against the company[91] Note 14—Other (Expense) Income, Net Other (expense) income, net, shifted to a net expense of $1.380 million in the three months ended October 31, 2020, from a net income of $234,000 in the prior year, primarily due to foreign currency transaction losses and losses on investments | Item | 2020 (in thousands) | 2019 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Foreign currency transaction (losses) gains | $(428) | $671 | | Write-off of tax assets related to prior periods | $— | $(474) | | (Losses) gains on investments | $(920) | $26 | | Other | $(32) | $11 | | Total other (expense) income, net | $(1,380) | $234 | Note 15—Recently Issued Accounting Standards Not Yet Adopted The company is evaluating the impact of new FASB ASUs on credit losses, income taxes, and equity investments, to be adopted in future fiscal years - The company will adopt ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), on August 1, 2023[93] - The company will adopt ASU No. 2019-12, Income Taxes (Topic 740), on August 1, 2021[94] - The company will adopt ASU No. 2020-01, Investments—Equity Securities (Topic 321), on August 1, 2021[95] Note 16—Subsequent Event—Purchase of Shares and Warrants from Rafael Holdings, Inc. On December 7, 2020, the company purchased 218,245 newly issued shares of Rafael Holdings' Class B common stock and warrants for an additional 43,649 shares for $5.0 million - On December 7, 2020, the company purchased 218,245 newly issued shares and warrants to purchase up to 43,649 shares of Rafael Holdings' Class B common stock for an aggregate consideration of $5.0 million[96] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three months ended October 31, 2020, highlighting segment performance and liquidity Forward-Looking Statements This section contains cautionary statements regarding forward-looking information, emphasizing that actual results may differ materially from projections due to various risks and uncertainties - This Quarterly Report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from projected results[99] Critical Accounting Policies The company's critical accounting policies involve significant management judgments and estimates, particularly concerning allowances, goodwill, asset valuation, and tax and regulatory fees - Critical accounting policies include those related to the allowance for doubtful accounts, goodwill, valuation of long-lived assets, income taxes, sales taxes, regulatory agency fees, and direct cost of revenues—disputed amounts[100] Recently Issued Accounting Standards Not Yet Adopted The company is evaluating the impact of new FASB ASUs on credit losses (ASU 2016-13), income taxes (ASU 2019-12), and equity investments (ASU 2020-01) - The company is evaluating the impact of ASU No. 2016-13 (Credit Losses), ASU No. 2019-12 (Income Taxes), and ASU No. 2020-01 (Equity Investments)[101][102][103] Results of Operations The company's results of operations for the three months ended October 31, 2020, show a significant improvement in income from operations, driven by strong growth in Fintech and net2phone-UCaaS Coronavirus Disease (COVID-19) COVID-19 had mixed financial impacts, boosting demand for consumer digital offerings while accelerating the decline in Carrier Services, with NRS showing resilience and sufficient liquidity expected for 12 months - COVID-19 drove significant increases in demand for BOSS Revolution Money Transfer, BOSS Revolution Calling, and Mobile Top-Up through digital channels[106] - Carrier Services' revenue declined more rapidly following the onset of COVID-19 as business communications shifted from calling to video conferencing[106] - National Retail Solutions (NRS) expanded sales of terminals, payment processing, and advertising services due to the resilience of local retailers during COVID-19[106] Three Months Ended October 31, 2020 Compared to Three Months Ended October 31, 2019 The company's reportable segments were revised to Fintech, net2phone-UCaaS, and Traditional Communications, showing overall significant improvement in income from operations driven by growth and efficiency - Reportable business segments were revised to Fintech, net2phone-UCaaS, and Traditional Communications, effective August 1, 2020[108] - The company evaluates the performance of its business segments based primarily on income (loss) from operations[108] Fintech Segment Fintech revenues more than doubled year-over-year to $20.1 million, driven by increased transaction volume in BOSS Revolution Money Transfer's digital channel and NRS expansion, achieving a significant turnaround to operating income | Metric | 2020 (in millions) | 2019 (in millions) | | :-------------------------------- | :----------------- | :----------------- | | Revenues | $20.1 | $9.6 | | Direct cost of revenues | $6.2 | $3.9 | | Selling, general and administrative | $10.4 | $8.1 | | Income (loss) from operations | $3.1 | $(2.7) | - Revenues from BOSS Revolution Money Transfer increased 110.5% primarily due to increased transaction volume in its digital channel and a benefit from foreign exchange market conditions[112] - Revenues from National Retail Solutions (NRS) increased 109.3% driven by the expansion of its POS network and revenue growth from payment processing and digital advertising[113] - Direct cost of revenues as a percentage of revenues in Fintech decreased 920 basis points to 30.9% due to a decrease in BOSS Revolution Money Transfer's direct cost of revenues as a percentage of revenues, largely from increased foreign exchange revenue[115] net2phone-UCaaS Segment net2phone-UCaaS revenues increased 33.6% to $9.6 million, primarily driven by growth in the United States and a 58% increase in seats served to 176,000, while the segment's operating loss remained relatively stable | Metric | 2020 (in millions) | 2019 (in millions) | | :-------------------------------- | :----------------- | :----------------- | | Revenues | $9.6 | $7.2 | | Direct cost of revenues | $2.0 | $1.5 | | Selling, general and administrative | $10.3 | $8.5 | | Loss from operations | $(3.8) | $(3.7) | - Seats served increased 58% to 176,000 at October 31, 2020, from 112,000 at October 31, 2019[120] - Subscription revenue increased 31.7% to $9.0 million, led by growth in the U.S. market[120] Traditional Communications Segment Traditional Communications revenues decreased 3.0% to $313.7 million, primarily due to a significant decline in Carrier Services, partially offset by strong growth in Mobile Top-Up, while income from operations more than doubled | Metric | 2020 (in millions) | 2019 (in millions) | | :-------------------------------- | :----------------- | :----------------- | | Revenues | $313.7 | $323.4 | | Direct cost of revenues | $265.0 | $274.1 | | Selling, general and administrative | $29.2 | $34.6 | | Income from operations | $15.8 | $7.5 | - Mobile Top-Up revenues increased 24.7% to $95.8 million due to the addition of new mobile partners and increasing demand for data-centric top-up bundles[128] - Carrier Services revenues decreased 22.7% to $87.8 million, with minutes of use down 32.4%, as communications globally continued to transition away from international voice calling, accelerated by COVID-19[128][130] - Direct cost of revenues as a percentage of revenues in Traditional Communications decreased 30 basis points to 84.5%, primarily due to the continued migration of BOSS Revolution Calling customers to digital platforms[132] Corporate Corporate loss from operations improved to $1.9 million from $2.5 million, primarily due to a decrease in stock-based compensation and a net gain from Straight Path class action insurance claims offsetting legal fees | Metric | 2020 (in millions) | 2019 (in millions) | | :-------------------------------- | :----------------- | :----------------- | | General and administrative expenses | $(2.2) | $(2.2) | | Other operating gain (expense), net | $0.3 | $(0.3) | | Loss from operations | $(1.9) | $(2.5) | - Corporate general and administrative expense was substantially unchanged, primarily because a decrease in stock-based compensation was mostly offset by an increase in employee compensation[138] - Other operating gain (expense), net, improved due to $0.6 million in insurance claims offsetting $0.3 million in legal fees for the Straight Path class action[140] Consolidated Consolidated income from operations significantly improved to $13.3 million from a loss of $1.4 million, resulting in net income attributable to IDT Corporation of $8.3 million, a substantial turnaround from a $1.5 million loss in the prior year | Metric | 2020 (in millions) | 2019 (in millions) | | :---------------------------------------- | :----------------- | :----------------- | | Income (loss) from operations | $13.3 | $(1.4) | | Interest (expense) income, net | $(0.1) | $0.3 | | Other (expense) income, net | $(1.4) | $0.2 | | Provision for income taxes | $(3.4) | $(0.5) | | Net income (loss) attributable to IDT Corporation | $8.3 | $(1.5) | - Stock-based compensation expense included in consolidated selling, general and administrative expenses decreased to $0.5 million in the three months ended October 31, 2020, from $1.4 million in the prior year period[143] - The increase in income tax expense was primarily due to differences in the amount of taxable income earned in the various taxing jurisdictions[144] Liquidity and Capital Resources The company expects sufficient liquidity for the next 12 months, with $119.0 million in cash, cash equivalents, debt securities, and current equity investments, and improved operating cash flow despite increased investing activities - As of October 31, 2020, the company had $119.0 million in cash, cash equivalents, debt securities, and current equity investments, and working capital of $5.4 million[147] - Unrestricted cash and cash equivalents held by IDT Payment Services, totaling $9.0 million at October 31, 2020, are treated as substantially restricted and unavailable for other purposes[148] | Metric | 2020 (in millions) | 2019 (in millions) | | :-------------------------------------------------------------------- | :----------------- | :----------------- | | Operating activities | $18.8 | $(5.0) | | Investing activities | $(27.3) | $(11.2) | | Financing activities | $(2.7) | $0.0 | | Decrease in cash, cash equivalents, and restricted cash and cash equivalents | $(13.1) | $(4.8) | Operating Activities Net cash provided by operating activities was $18.8 million in the three months ended October 31, 2020, a significant improvement from a net use of $5.0 million in the prior year, influenced by changes in trade accounts receivable, deferred revenue, and customer deposits - Gross trade accounts receivable increased to $53.5 million at October 31, 2020, from $50.3 million at July 31, 2020[150] - Customer deposit liabilities at IDT Financial Services Limited decreased to $113.7 million at October 31, 2020, from $116.0 million at July 31, 2020, mainly due to the decline of the bank's travel-related programs[152] Investing Activities Net cash used in investing activities increased to $27.3 million in the three months ended October 31, 2020, from $11.3 million in the prior year, primarily due to higher purchases of debt securities and equity investments - Capital expenditures were $4.6 million in the three months ended October 31, 2020, and are anticipated to be $18 million to $20 million for the twelve-month period ending October 31, 2021[154] - Purchases of debt securities and equity investments increased to $29.3 million in the three months ended October 31, 2020, from $8.2 million in the prior year period[155] Financing Activities Net cash used in financing activities was $2.7 million in the three months ended October 31, 2020, primarily due to repurchases of Class B common stock totaling $2.8 million, with 5.8 million shares remaining available under the program - The company repurchased 463,792 shares of Class B common stock for an aggregate purchase price of $2.8 million in the three months ended October 31, 2020[159] - At October 31, 2020, 5.8 million shares remained available for repurchase under the stock repurchase program[159] Other Sources and Uses of Resources The company's $25.0 million line of credit facility expired in July 2020, and it plans to seek a similar agreement in fiscal 2021, while also pursuing strategic investments and acquisitions - The company's $25.0 million line of credit facility expired on July 15, 2020, and it will seek to enter into a similar credit agreement in fiscal 2021[161] - On December 7, 2020, the company purchased 218,245 newly issued shares and warrants for 43,649 shares of Rafael Holdings' Class B common stock for $5.0 million[162] - The company intends to make strategic investments and acquisitions to complement, expand, and/or enter into new businesses[163] Contractual Obligations and Other Commercial Commitments Total contractual obligations at October 31, 2020, were $14.7 million, primarily consisting of purchase commitments, connectivity obligations, and operating leases, excluding performance bonds and potential contingent consideration | Payments Due by Period (in millions) | Total | Less than 1 year | 1–3 years | 4–5 years | After 5 years | | :----------------------------------- | :---- | :--------------- | :-------- | :-------- | :------------ | | Purchase commitments | $2.5 | $2.5 | $— | $— | $— | | Connectivity obligations | $1.3 | $0.8 | $0.5 | $— | $— | | Operating leases | $10.9 | $3.4 | $4.7 | $2.8 | $— | | Total contractual obligations | $14.7 | $6.7 | $5.2 | $2.8 | $— | - The table does not include an aggregate of $18.0 million in performance bonds or $0.8 million in potential contingent consideration related to the Ringsouth acquisition due to the uncertainty of the amount and/or timing of any such payments[164] Off-Balance Sheet Arrangements The company does not have significant off-balance sheet arrangements, other than indemnification agreements with Straight Path related to its 2013 spin-off and $18.0 million in aggregate performance bonds outstanding - The company has indemnification agreements with Straight Path related to its 2013 spin-off, covering liabilities for federal, state, local, and foreign taxes and other obligations[166] - The company had aggregate performance bonds of $18.0 million outstanding at October 31, 2020[167] Item 3. Quantitative and Qualitative Disclosures About Market Risks As a smaller reporting company, IDT Corporation is not required to provide specific quantitative and qualitative disclosures about market risks in this report - As a smaller reporting company, IDT Corporation is not required to provide the information required by this item[168] Item 4. Controls and Procedures The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of October 31, 2020, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of October 31, 2020[169] - There were no changes in internal control over financial reporting during the quarter ended October 31, 2020, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[170] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 13 of the Consolidated Financial Statements for a detailed description of the legal proceedings in which the company is involved - Legal proceedings in which the company is involved are described in Note 13 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q[172] Item 1A. Risk Factors There are no material changes from previously disclosed risk factors, except for new risks related to Brexit, including uncertainties regarding trade deals, potential adverse impacts on UK and European business operations, and the cessation of passporting rights for IDT Financial Services Limited (IDTFS) - New risk factors include those related to the United Kingdom leaving the European Union ("Brexit"), which could have a material adverse impact on the company's United Kingdom and European business operations[173] - IDT Financial Services Limited (IDTFS), the company's Gibraltar-based bank, will cease to have passporting rights under EU law following the Brexit transition period, potentially limiting its ability to provide services to customers in EU countries[177] - The company is currently seeking an e-money license issued by an EU country and implementing contingency measures to allow the continuation of IDTFS's services in the European Economic Area[177] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of fiscal 2021, the company repurchased 464,845 shares of its Class B common stock for an average price of $6.11 per share, with 5.8 million shares remaining available under the stock repurchase program | Period | Total Number of Shares Purchased | Average Price per Share | Number of Shares Purchased as part of Publicly Announced Programs | Maximum Number of Shares that May Yet Be Purchased Under the Programs | | :------------------- | :------------------------------- | :---------------------- | :---------------------------------------------------------------- | :-------------------------------------------------------------------- | | August 1-31, 2020 | 19,864 | $6.51 | 18,811 | 6,213,478 | | September 1–30, 2020 | 444,981 | $6.10 | 444,981 | 5,768,497 | | October 1–31, 2020 | — | $— | — | 5,768,497 | | Total | 464,845 | $6.11 | 463,792 | | - At October 31, 2020, 5.8 million shares remained available for repurchase under the stock repurchase program[178] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - There were no defaults upon senior securities[180] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[180] Item 5. Other Information No other information is reported under this item - No other information is reported under this item[180] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, and XBRL taxonomy documents - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1, 32.2) and XBRL Taxonomy Extension documents[180] SIGNATURES SIGNATURES The report is signed by Shmuel Jonas, Chief Executive Officer, and Marcelo Fischer, Chief Financial Officer, on December 10, 2020, certifying its submission pursuant to the Securities Exchange Act of 1934 - The report was signed by Shmuel Jonas, Chief Executive Officer, and Marcelo Fischer, Chief Financial Officer, on December 10, 2020[183]