UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
| | ☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR
THE QUARTERLY PERIOD ENDED JANUARY 31, 2015
or
| | ☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission
File Number: 1-16371
IDT
CORPORATION
(Exact
Name of Registrant as Specified in its Charter)
Delaware |
|
22-3415036 |
(State
or other jurisdiction of
incorporation
or organization) |
|
(I.R.S.
Employer
Identification
Number) |
|
|
|
520
Broad Street, Newark, New Jersey |
|
07102 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(973)
438-1000
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
Accelerated filer |
☒ |
|
|
|
|
Non-accelerated
filer |
☐ (Do
not check if a smaller reporting company) |
Smaller reporting company |
☐ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒
As
of March 9, 2015, the registrant had the following shares outstanding:
Class A
common stock, $.01 par value: |
|
1,574,326
shares outstanding (excluding 1,698,000 treasury shares) |
Class B common stock, $.01 par value: |
|
21,890,447
shares outstanding (excluding 2,979,800 treasury shares) |
IDT
CORPORATION
TABLE OF CONTENTS
PART
I. FINANCIAL INFORMATION |
3 |
|
|
|
Item 1. |
Financial
Statements (Unaudited) |
3 |
|
|
|
|
Consolidated
Balance Sheets |
3 |
|
|
|
|
Consolidated
Statements of Income |
4 |
|
|
|
|
Consolidated
Statements of Comprehensive Income |
5 |
|
|
|
|
Consolidated
Statements of Cash Flows |
6 |
|
|
|
|
Notes
to Consolidated Financial Statements |
7 |
|
|
|
Item 2. |
Management’s
Discussion and Analysis of Financial Condition and Results of Operations |
16 |
|
|
|
Item 3. |
Quantitative
and Qualitative Disclosures About Market Risks |
28 |
|
|
|
Item 4. |
Controls
and Procedures |
28 |
|
|
PART
II. OTHER INFORMATION |
29 |
|
|
|
Item 1. |
Legal
Proceedings |
29 |
|
|
|
Item 1A. |
Risk
Factors |
29 |
|
|
|
Item 2. |
Unregistered
Sales of Equity Securities and Use of Proceeds |
29 |
|
|
|
Item 3. |
Defaults
Upon Senior Securities |
29 |
|
|
|
Item 4. |
Mine
Safety Disclosures |
29 |
|
|
|
Item 5. |
Other
Information |
29 |
|
|
|
Item 6. |
Exhibits |
30 |
|
|
SIGNATURES
|
31 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
(Unaudited)
IDT CORPORATION
CONSOLIDATED BALANCE SHEETS
| |
January
31, 2015 | | |
July 31,
2014 | |
| |
(Unaudited) | | |
(Note
1) | |
| |
(in
thousands) | |
Assets | |
| | |
| |
Current assets: | |
| | |
| |
Cash
and cash equivalents | |
$ | 133,141 | | |
$ | 153,823 | |
Restricted
cash and cash equivalents—short-term | |
| 69,197 | | |
| 65,706 | |
Marketable
securities | |
| 19,041 | | |
| 12,873 | |
Trade accounts
receivable, net of allowance for doubtful accounts of $6,123 at January 31, 2015 and $11,507 at July 31, 2014 | |
| 55,796 | | |
| 69,330 | |
Receivable
from sale of interest in Fabrix Systems Ltd. | |
| 28,290 | | |
| — | |
Prepaid expenses | |
| 16,253 | | |
| 21,799 | |
Deferred income
tax assets, net—current portion | |
| 2,026 | | |
| 2,953 | |
Other current
assets | |
| 10,377 | | |
| 12,381 | |
Total current
assets | |
| 334,121 | | |
| 338,865 | |
Property,
plant and equipment, net | |
| 86,235 | | |
| 81,760 | |
Goodwill | |
| 14,446 | | |
| 14,830 | |
Other intangibles,
net | |
| 1,490 | | |
| 1,742 | |
Investments | |
| 11,376 | | |
| 10,008 | |
Restricted
cash and cash equivalents—long-term | |
| — | | |
| 2,763 | |
Deferred income
tax assets, net—long-term portion | |
| 14,733 | | |
| 16,248 | |
Other assets | |
| 18,002 | | |
| 14,715 | |
Total assets | |
$ | 480,403 | | |
$ | 480,931 | |
Liabilities
and equity | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Revolving
credit loan payable | |
$ | — | | |
$ | 13,000 | |
Trade accounts
payable | |
| 30,186 | | |
| 42,135 | |
Accrued expenses | |
| 137,920 | | |
| 142,528 | |
Deferred revenue | |
| 87,753 | | |
| 101,165 | |
Customer deposits | |
| 64,555 | | |
| 62,685 | |
Income taxes
payable | |
| 401 | | |
| 732 | |
Notes payable—current
portion | |
| 6,492 | | |
| 271 | |
Other current
liabilities | |
| 4,119 | | |
| 5,468 | |
Total current
liabilities | |
| 331,426 | | |
| 367,984 | |
Notes payable—long-term
portion | |
| — | | |
| 6,353 | |
Other liabilities | |
| 1,829 | | |
| 5,430 | |
Total liabilities | |
| 333,255 | | |
| 379,767 | |
Commitments
and contingencies | |
| | | |
| | |
Equity: | |
| | | |
| | |
IDT Corporation
stockholders’ equity: | |
| | | |
| | |
Preferred
stock, $.01 par value; authorized shares—10,000; no shares issued | |
| — | | |
| — | |
Class A
common stock, $.01 par value; authorized shares—35,000; 3,272 shares issued and 1,574 shares outstanding at January
31, 2015 and July 31, 2014 | |
| 33 | | |
| 33 | |
Class B common
stock, $.01 par value; authorized shares—200,000; 24,849 and 24,587 shares issued and 21,869 and 21,653 shares outstanding
at January 31, 2015 and July 31, 2014, respectively | |
| 248 | | |
| 246 | |
Additional
paid-in capital | |
| 399,325 | | |
| 392,858 | |
Treasury stock,
at cost, consisting of 1,698 and 1,698 shares of Class A common stock and 2,980 and 2,934 shares of Class B common stock at
January 31, 2015 and July 31, 2014, respectively | |
| (100,545 | ) | |
| (99,841 | ) |
Accumulated
other comprehensive (loss) income | |
| (192 | ) | |
| 3,668 | |
Accumulated
deficit | |
| (152,950 | ) | |
| (196,725 | ) |
Total IDT
Corporation stockholders’ equity | |
| 145,919 | | |
| 100.239 | |
Noncontrolling
interests | |
| 1,229 | | |
| 925 | |
Total equity | |
| 147,148 | | |
| 101,164 | |
Total liabilities
and equity | |
$ | 480,403 | | |
$ | 480,931 | |
See accompanying notes to consolidated
financial statements.
IDT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| |
Three Months Ended January 31, | | |
Six Months Ended January 31, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(in thousands, except per share data) | |
Revenues | |
$ | 394,173 | | |
$ | 406,423 | | |
$ | 807,051 | | |
$ | 827,093 | |
Costs and expenses: | |
| | | |
| | | |
| | | |
| | |
Direct cost of revenues (exclusive of depreciation and amortization) | |
| 328,737 | | |
| 335,258 | | |
| 672,544 | | |
| 685,577 | |
Selling, general and administrative (i) | |
| 57,394 | | |
| 57,285 | | |
| 114,392 | | |
| 115,040 | |
Depreciation and amortization | |
| 4,440 | | |
| 4,059 | | |
| 8,845 | | |
| 7,955 | |
Research and development | |
| — | | |
| 2,597 | | |
| 1,656 | | |
| 4,873 | |
Severance | |
| 351 | | |
| — | | |
| 1,899 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Total costs and expenses | |
| 390,922 | | |
| 399,199 | | |
| 799,336 | | |
| 813,445 | |
Gain on sale of interest in Fabrix Systems Ltd. | |
| 484 | | |
| — | | |
| 75,629 | | |
| — | |
Other operating gains, net | |
| — | | |
| 350 | | |
| — | | |
| 1,209 | |
| |
| | | |
| | | |
| | | |
| | |
Income from operations | |
| 3,735 | | |
| 7,574 | | |
| 83,344 | | |
| 14,857 | |
Interest (expense) income, net | |
| (40 | ) | |
| 105 | | |
| (131 | ) | |
| 80 | |
Other income (expense), net | |
| 967 | | |
| (3,065 | ) | |
| 2,290 | | |
| (3,614 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income before income taxes | |
| 4,662 | | |
| 4,614 | | |
| 85,503 | | |
| 11,323 | |
Provision for income taxes | |
| (1,905 | ) | |
| (1,641 | ) | |
| (2,392 | ) | |
| (4,300 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net income | |
| 2,757 | | |
| 2,973 | | |
| 83,111 | | |
| 7,023 | |
Net income attributable to noncontrolling interests | |
| (247 | ) | |
| (438 | ) | |
| (445 | ) | |
| (965 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net income attributable to IDT Corporation | |
$ | 2,510 | | |
$ | 2,535 | | |
$ | 82,666 | | |
$ | 6,058 | |
| |
| | | |
| | | |
| | | |
| | |
Earnings per share attributable to IDT Corporation common stockholders: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 0.11 | | |
$ | 0.12 | | |
$ | 3.63 | | |
| $ 0. 28 | |
Diluted | |
$ | 0.11 | | |
$ | 0.11 | | |
$ | 3.57 | | |
$ | 0.27 | |
Weighted-average number of shares used in calculation of earnings per share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 22,818 | | |
| 21,572 | | |
| 22,783 | | |
| 21,305 | |
Diluted | |
| 23,225 | | |
| 22,743 | | |
| 23,155 | | |
| 22,827 | |
| |
| | | |
| | | |
| | | |
| | |
Dividends declared per common share | |
$ | 0.82 | | |
$ | 0.17 | | |
$ | 1.67 | | |
$ | 0.17 | |
| |
| | | |
| | | |
| | | |
| | |
(i) Stock-based compensation included in selling, general and administrative expenses | |
$ | 2,172 | | |
$ | 1,632 | | |
$ | 3,020 | | |
$ | 4,127 | |
See accompanying notes to consolidated
financial statements.
IDT CORPORATION
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
Three Months Ended
January 31, |
|
|
Six Months Ended
January 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
(in thousands) |
|
Net income | |
$ | 2,757 | | |
$ | 2,973 | | |
$ | 83,111 | | |
$ | 7,023 | |
Other comprehensive (loss) income: | |
| | | |
| | | |
| | | |
| | |
Change in unrealized gain on available-for-sale securities | |
| 8 | | |
| — | | |
| 15 | | |
| — | |
Foreign currency translation adjustments | |
| (2,119 | ) | |
| 518 | | |
| (3,977 | ) | |
| 1,182 | |
Other comprehensive (loss) income | |
| (2,111 | ) | |
| 518 | | |
| (3,962 | ) | |
| 1,182 | |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive income | |
| 646 | | |
| 3,491 | | |
| 79,149 | | |
| 8,205 | |
Comprehensive income attributable to noncontrolling interests | |
| (247 | ) | |
| (438 | ) | |
| (445 | ) | |
| (965 | ) |
Comprehensive income attributable to IDT Corporation | |
$ | 399 | | |
$ | 3,053 | | |
$ | 78,704 | | |
$ | 7,240 | |
See accompanying notes to consolidated
financial statements.
IDT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six Months Ended
January 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
(in thousands) |
|
Operating activities | |
| | |
| |
Net income | |
$ | 83,111 | | |
$ | 7,023 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 8,845 | | |
| 7,955 | |
Deferred income taxes | |
| 2,441 | | |
| 2,614 | |
Provision for doubtful accounts receivable | |
| 35 | | |
| 548 | |
Gain on sale of interest in Fabrix Systems Ltd. | |
| (75,629 | ) | |
| — | |
Gain on proceeds from insurance | |
| — | | |
| (571 | ) |
Realized loss on marketable securities | |
| 54 | | |
| — | |
Interest in the equity of investments | |
| (1,459 | ) | |
| (852 | ) |
Stock-based compensation | |
| 3,020 | | |
| 4,127 | |
Change in assets and liabilities: | |
| | | |
| | |
Restricted cash and cash equivalents | |
| (7,912 | ) | |
| (19,077 | ) |
Trade accounts receivable | |
| 3,285 | | |
| 3,465 | |
Prepaid expenses, other current assets and other assets | |
| 5,787 | | |
| (2,119 | ) |
Trade accounts payable, accrued expenses, other current liabilities and other liabilities | |
| (7,478 | ) | |
| (23,300 | ) |
Customer deposits | |
| 8,193 | | |
| 22,777 | |
Income taxes payable | |
| (292 | ) | |
| 665 | |
Deferred revenue | |
| (1,047 | ) | |
| 5,873 | |
| |
| | | |
| | |
Net cash provided by operating activities | |
| 20,954 | | |
| 9,128 | |
Investing activities | |
| | | |
| | |
Capital expenditures | |
| (13,946 | ) | |
| (7,847 | ) |
Proceeds from sale of interest in Fabrix Systems Ltd, net of cash and cash equivalents sold. | |
| 36,039 | | |
| — | |
Purchase of investments | |
| (125 | ) | |
| — | |
Proceeds from sale and redemption of investments | |
| 43 | | |
| 1,019 | |
Proceeds from insurance | |
| — | | |
| 571 | |
Purchases of marketable securities | |
| (18,382 | ) | |
| (11,631 | ) |
Proceeds from maturities and sales of marketable securities | |
| 12,104 | | |
| 10,094 | |
| |
| | | |
| | |
Net cash provided by (used in) investing activities | |
| 15,733 | | |
| (7,794 | ) |
Financing activities | |
| | | |
| | |
Dividends paid | |
| (38,891 | ) | |
| (5,754 | ) |
Distributions to noncontrolling interests | |
| (750 | ) | |
| (626 | ) |
Purchases of stock of subsidiary | |
| — | | |
| (1,133 | ) |
Proceeds from exercise of stock options | |
| 2,896 | | |
| 528 | |
Proceeds from revolving credit loan payable | |
| — | | |
| 30,000 | |
Repayments of revolving credit loan payable and other borrowings | |
| (13,132 | ) | |
| (36,187 | ) |
Repurchases of Class B common stock | |
| (703 | ) | |
| (955 | ) |
| |
| | | |
| | |
Net cash used in financing activities | |
| (50,580 | ) | |
| (14,127 | ) |
Effect of exchange rate changes on cash and cash equivalents | |
| (6,789 | ) | |
| (646 | ) |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| (20,682 | ) | |
| (13,439 | ) |
Cash and cash equivalents at beginning of period | |
| 153,823 | | |
| 151,600 | |
| |
| | | |
| | |
Cash and cash equivalents at end of period | |
$ | 133,141 | | |
$ | 138,161 | |
Supplemental schedule of non-cash investing and financing activities | |
| | | |
| | |
Net liabilities excluding cash and cash equivalents of Fabrix Systems Ltd. sold | |
$ | 14,333 | | |
$ | — | |
Adjustment to liabilities in connection with the Straight Path Spin-Off | |
$ | — | | |
$ | 1,624 | |
See accompanying notes to consolidated
financial statements.
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1—Basis of Presentation
The accompanying unaudited consolidated
financial statements of IDT Corporation and its subsidiaries (the “Company” or “IDT”) have been prepared
in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim
financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the three and six months ended January 31, 2015 are not necessarily indicative of the results that may be expected
for the fiscal year ending July 31, 2015. The balance sheet at July 31, 2014 has been derived from the Company’s audited
financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete
financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included
in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2014, as filed with the U.S. Securities
and Exchange Commission (“SEC”).
The Company’s fiscal year ends
on July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year
indicated (e.g., fiscal 2015 refers to the fiscal year ending July 31, 2015).
In the consolidated statements of cash
flow, $4.6 million previously included in “Restricted cash and cash equivalents” at July 31, 2013 was reclassified
to “Cash and cash equivalents” to conform to the current year’s presentation.
Note 2—Sale of Interest in Fabrix Systems Ltd.
On October 8, 2014, the Company completed
the sale of its interest in Fabrix Systems Ltd. (“Fabrix”) to Telefonaktiebolget LM Ericsson (publ) (“Ericsson”).
The final sale price for 100% of the shares in Fabrix was $95 million in cash, excluding transaction costs and working capital
and other adjustments. The Company owned approximately 78% of Fabrix on a fully diluted basis. The Company’s share of the
sale price was $68.0 million, after reflecting the impact of working capital and other adjustments. As of January 31, 2015, the
Company had received cash of $36.0 million and had aggregate receivables of $32.0 million, of which $28.3 million was classified
as “Receivable from sale of interest in Fabrix Systems Ltd.” and $3.7 million was included in “Other assets”
in the accompanying consolidated balance sheet. The Company and the other shareholders placed $13.0 million of the proceeds in
escrow for the resolution of post-closing claims that may arise. Any unclaimed escrow balance will be released in two tranches
over a period of 18 months. In the three months ended January 31, 2015, the Company recorded gain on the sale of its interest in
Fabrix of $0.5 million, which represented the Company’s share of working capital and other adjustments. In the six months
ended January 31, 2015, the Company recorded a gain on the sale of its interest in Fabrix of $75.6 million.
Fabrix’ income (loss) before
income taxes and income (loss) before income taxes attributable to the Company, which is included in the accompanying consolidated
statements of income, were as follows:
| |
Three Months Ended January 31, | | |
Six Months Ended January 31, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(in thousands) | |
(Loss) income before income taxes | |
$ | — | | |
$ | (993 | ) | |
$ | 917 | | |
$ | (1,676 | ) |
| |
| | | |
| | | |
| | | |
| | |
(Loss) income before income taxes attributable to IDT Corporation | |
$ | — | | |
$ | (878 | ) | |
$ | 1,325 | | |
$ | (1,482 | ) |
Note 3—Marketable Securities
The following is a summary of marketable
securities:
| |
Amortized Cost | | |
Gross Unrealized Gains | | |
Gross Unrealized Losses | | |
Fair Value | |
| |
(in thousands) | |
Available-for-sale securities: | |
| | |
| | |
| | |
| |
January 31, 2015: | |
| | |
| | |
| | |
| |
Certificates of deposit* | |
$ | 12,394 | | |
$ | — | | |
$ | — | | |
$ | 12,394 | |
Municipal bonds | |
| 6,640 | | |
| 8 | | |
| (1 | ) | |
| 6,647 | |
Total | |
$ | 19,034 | | |
$ | 8 | | |
$ | (1 | ) | |
$ | 19,041 | |
| |
| | | |
| | | |
| | | |
| | |
July 31, 2014: | |
| | | |
| | | |
| | | |
| | |
Certificates of deposit* | |
$ | 10,375 | | |
$ | — | | |
$ | — | | |
$ | 10,375 | |
Equity securities | |
| 31 | | |
| — | | |
| (9 | ) | |
| 22 | |
Municipal bonds | |
| 2,475 | | |
| 1 | | |
| — | | |
| 2,476 | |
Total | |
$ | 12,881 | | |
$ | 1 | | |
$ | (9 | ) | |
$ | 12,873 | |
* Each of the Company’s certificates of
deposit has a CUSIP, was purchased in the secondary market through a broker and may be sold in the secondary market.
Proceeds from maturities and sales
of available-for-sale securities were $5.3 million and $4.0 million in the three months ended January 31, 2015 and 2014, respectively,
and $12.1 million and $10.1 million in the six months ended January 31, 2015 and 2014, respectively. The gross realized losses
that were included in earnings as a result of sales were $14,000 and nil in the three months ended January 31, 2015 and 2014, respectively,
and $54,000 and nil in the six months ended January 31, 2015 and 2014, respectively. The Company uses the specific identification
method in computing the gross realized gains and gross realized losses on the sales of marketable securities.
The contractual maturities of the Company’s
available-for-sale debt securities at January 31, 2015 were as follows:
| |
Fair Value | |
| |
(in thousands) | |
Within one year | |
$ | 15,920 | |
After one year through five years | |
| 3,121 | |
After five years through ten years | |
| — | |
After ten years | |
| — | |
Total | |
$ | 19,041 | |
The following available-for-sale securities
were in an unrealized loss position for which other-than-temporary impairments have not been recognized:
| |
Unrealized Losses | | |
Fair Value | |
| |
(in thousands) | |
January 31, 2015: | |
| | |
| |
Municipal bonds | |
$ | 1 | | |
$ | 1,230 | |
July 31, 2014: | |
| | | |
| | |
Equity securities | |
$ | 9 | | |
$ | 22 | |
At January 31, 2015 and July 31, 2014, there
were no securities in a continuous unrealized loss position for 12 months or longer.
Note 4—Fair Value Measurements
The following tables present the balance
of assets measured at fair value on a recurring basis:
| |
Level 1 (1) | | |
Level 2 (2) | | |
Level 3 (3) | | |
Total | |
| |
(in thousands) | |
January 31, 2015: | |
| | |
| | |
| | |
| |
Available-for-sale securities | |
$ | — | | |
$ | 19,041 | | |
$ | — | | |
$ | 19,041 | |
| |
| | | |
| | | |
| | | |
| | |
July 31, 2014: | |
| | | |
| | | |
| | | |
| | |
Available-for-sale securities | |
$ | — | | |
$ | 12,873 | | |
$ | — | | |
$ | 12,873 | |
(1) – quoted prices in active markets for identical assets
or liabilities
(2) – observable inputs other than quoted prices in active
markets for identical assets and liabilities
(3) – no observable pricing inputs in the market
At January 31, 2015 and July 31, 2014,
the Company did not have any liabilities measured at fair value on a recurring basis.
At January 31, 2015 and July 31, 2014,
the Company had $10.9 million and $9.5 million, respectively, in investments in hedge funds, of which less than $0.1 million and
$0.1 million, respectively, were included in “Other current assets” and $10.9 million and $9.4 million, respectively,
were included in “Investments” in the accompanying consolidated balance sheets. The Company’s investments in
hedge funds are accounted for using the equity method or the cost method; therefore investments in hedge funds are not measured
at fair value.
Fair Value of Other Financial Instruments
The estimated fair value of the Company’s
other financial instruments was determined using available market information or other appropriate valuation methodologies. However,
considerable judgment is required in interpreting these data to develop estimates of fair value. Consequently, the estimates are
not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
Cash and cash equivalents, restricted
cash and cash equivalents—short-term, other current assets, revolving credit loan payable, customer deposits, notes payable—current
portion and other current liabilities. At January 31, 2015 and July 31, 2014, the carrying amount of these assets and liabilities
approximated fair value because of the short period of time to maturity. The fair value estimates for cash, cash equivalents and
restricted cash and cash equivalents—short-term were classified as Level 1 and other current assets, revolving credit loan
payable, customer deposits, notes payable—current portion and other current liabilities were classified as Level 2 of the
fair value hierarchy.
Restricted cash and cash equivalents—long-term.
At July 31, 2014, the carrying amount of restricted cash and cash equivalents—long-term approximated fair value. The fair
value was estimated based on the anticipated cash flows once the restrictions are removed, which was classified as Level 2 of the
fair value hierarchy.
Other assets, Notes payable—long-term
portion and other liabilities. At January 31, 2015 and July 31, 2014, the carrying amount of these assets and liabilities
approximated fair value. The fair values were estimated based on the Company’s assumptions, which were classified as Level
3 of the fair value hierarchy.
The Company’s investments at
January 31, 2015 and July 31, 2014 included investments in the equity of certain privately held entities and other investments
that are accounted for at cost. It is not practicable to estimate the fair value of these investments because of the lack of a
quoted market price for the shares of these entities, and the inability to estimate their fair value without incurring excessive
cost. The carrying value of these investments was $1.6 million and $1.8 million at January 31, 2015 and July 31, 2014, respectively,
which the Company believes was not impaired.
Note 5—Equity
Changes in the components of equity
were as follows:
| |
Six Months Ended
January 31, 2015 | |
| |
Attributable
to IDT Corporation | | |
Noncontrolling Interests | | |
Total | |
| |
(in thousands) | |
Balance, July 31, 2014 | |
$ | 100,239 | | |
$ | 925 | | |
$ | 101,164 | |
Dividends declared ($1.67 per share) | |
| (38,891 | ) | |
| — | | |
| (38,891 | ) |
Restricted Class B common stock purchased from employees | |
| (279 | ) | |
| — | | |
| (279 | ) |
Repurchases of Class B common stock through repurchase program | |
| (424 | ) | |
| — | | |
| (424 | ) |
Exercise of stock options. | |
| 2,896 | | |
| — | | |
| 2,896 | |
Stock issued for matching contributions to the 401(k) Plan | |
| 134 | | |
| — | | |
| 134 | |
Other | |
| — | | |
| 9 | | |
| 9 | |
Sale of interest in Fabrix Systems Ltd. | |
| 102 | | |
| 538 | | |
| 640 | |
Distributions to noncontrolling interests | |
| — | | |
| (750 | ) | |
| (750 | ) |
Stock-based compensation | |
| 3,438 | | |
| 62 | | |
| 3,500 | |
Comprehensive income: | |
| | | |
| | | |
| | |
Net income | |
| 82,666 | | |
| 445 | | |
| 83,111 | |
Other comprehensive loss | |
| (3,962 | ) | |
| — | | |
| (3,962 | ) |
Comprehensive income | |
| 78,704 | | |
| 445 | | |
| 79,149 | |
Balance, January 31, 2015 | |
$ | 145,919 | | |
$ | 1,229 | | |
$ | 147,148 | |
Dividend Payments
In the six months ended January 31,
2015, the Company paid aggregate cash dividends of $1.67 per share on its Class A common stock and Class B common stock, or
$38.9 million in total. The aggregate cash dividends included special dividends of $0.68 per share and $0.64 per share paid in
November 2014 and January 2015, respectively. In March 2015, the Company’s Board of Directors declared a dividend of $0.18
per share for the second quarter of fiscal 2015 to holders of the Company’s Class A common stock and Class B common stock.
The dividend will be paid on or about March 27, 2015 to stockholders of record as of the close of business on March 20, 2015.
Stock Repurchase Program
The Company has a stock repurchase
program that authorized the repurchase of up to an aggregate of 8.3 million shares of the Company’s Class B common
stock. In the six months ended January 31, 2015, the Company repurchased 29,675 shares of Class B common stock for an aggregate
purchase price of $0.4 million. There were no repurchases under the program in the six months ended January 31, 2014. As of January
31, 2015, 5.0 million shares remained available for repurchase under the stock repurchase program.
Restricted Stock
On March 11, 2015, the Compensation Committee of the
Company’s Board of Directors approved an equity grant of 0.3 million restricted shares of the Company’s Class B common
stock to its employees, including executive officers. The shares are expected to vest 50% in January 2017 and 50% in July 2018.
Note 6—Earnings Per Share
Basic earnings per share is computed
by dividing net income attributable to all classes of common stockholders of the Company by the weighted average number of shares
of all classes of common stock outstanding during the applicable period. Diluted earnings per share is computed in the same manner
as basic earnings per share, except that the number of shares is increased to include restricted stock still subject to risk of
forfeiture and to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of
such increase is anti-dilutive.
The weighted-average number of shares
used in the calculation of basic and diluted earnings per share attributable to the Company’s common stockholders consists
of the following:
| |
Three Months Ended January 31, | | |
Six Months Ended January 31, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(in thousands) | |
Basic weighted-average number of shares | |
| 22,818 | | |
| 21,572 | | |
| 22,783 | | |
| 21,305 | |
Effect of dilutive securities: | |
| | | |
| | | |
| | | |
| | |
Stock options | |
| 52 | | |
| 132 | | |
| 40 | | |
| 109 | |
Non-vested restricted Class B common stock | |
| 355 | | |
| 1,039 | | |
| 332 | | |
| 1,413 | |
Diluted weighted-average number of shares | |
| 23,225 | | |
| 22,743 | | |
| 23,155 | | |
| 22,827 | |
The following outstanding stock options were
excluded from the calculation of diluted earnings per share because the exercise price of the stock option was greater than the
average market price of the Company’s stock during the period:
| |
Three Months Ended January 31, | | |
Six Months Ended January 31, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(in thousands) | |
Shares excluded from the calculation of diluted earnings per share | |
| 16 | | |
| 16 | | |
| 16 | | |
| 42 | |
Note 7—Revolving Credit Loan Payable
The Company’s subsidiary, IDT
Telecom, Inc., entered into a credit agreement, dated July 12, 2012, with TD Bank, N.A. for a line of credit facility for
up to a maximum principal amount of $25.0 million. IDT Telecom may use the proceeds to finance working capital requirements, acquisitions
and for other general corporate purposes. The line of credit facility is secured by primarily all of IDT Telecom’s assets.
The principal outstanding bears interest per annum, at the option of IDT Telecom, at either (a) the U.S. Prime Rate less 125
basis points, or (b) the LIBOR rate adjusted by the Regulation D maximum reserve requirement plus 150 basis points. Interest
is payable monthly and all outstanding principal and any accrued and unpaid interest is due on the maturity date of January 31,
2017. At January 31, 2015 and July 31, 2014, there was nil and $13.0 million, respectively, outstanding under the facility.
The principal outstanding at July 31, 2014 incurred interest at a rate of 1.65% per annum. In August 2014, IDT Telecom repaid
the $13.0 million loan payable. The Company intends to continue to borrow under the facility from time to time. IDT Telecom pays
a quarterly unused commitment fee of 0.375% per annum on the average daily balance of the unused portion of the $25.0 million
commitment. IDT Telecom is required to comply with various affirmative and negative covenants as well as maintain certain financial
targets and ratios during the term of the line of credit, including IDT Telecom may not pay any dividend on its capital stock and
IDT Telecom’s aggregate loans and advances to affiliates or subsidiaries may not exceed $90.0 million. At January 31, 2015
and July 31, 2014, there were no amounts utilized for letters of credit under the line of credit, IDT Telecom was in compliance
with all of the covenants, and IDT Telecom’s aggregate loans and advances to affiliates and subsidiaries was $88.0 million
and $73.7 million, respectively.
Note 8—Severance Expense
Severance expense of $0.4 million and
$1.9 million in the three and six months ended January 31, 2015, respectively, was due to a downsizing of certain IDT Telecom sales
and administrative functions in Europe and the U.S. Approximately 20 employees were terminated in the six months ended January
31, 2015 as a result of the downsizing. At January 31, 2015, there was accrued severance of $0.5 million for this downsizing included
in “Accrued expenses” in the accompanying consolidated balance sheet.
In February and March 2015, the Company
completed a reduction of approximately 7% of its global compensation costs. The cost-cutting initiative is expected to reduce
the Company’s current selling, general and administrative expense run rate by approximately $10 million per year. As a result
of this reduction in headcount, the Company expects to incur severance expense of approximately $6.6 million in the third quarter
of fiscal 2015.
Note 9—Accumulated Other Comprehensive Income
The accumulated balances for each
classification of other comprehensive income (loss) were as follows:
| |
Unrealized Gain (Loss) on Available-
for-Sale Securities | | |
Foreign Currency Translation | | |
Accumulated
Other
Comprehensive
Income | |
| |
(in thousands) | |
Balance, July 31, 2014 | |
$ | (8 | ) | |
$ | 3,676 | | |
$ | 3,668 | |
Sale of interest in Fabrix Systems Ltd. | |
| — | | |
| 102 | | |
| 102 | |
Other comprehensive income (loss) attributable to IDT Corporation | |
| 15 | | |
| (3,977 | ) | |
| (3,962 | ) |
Balance, January 31, 2015 | |
$ | 7 | | |
$ | (199 | ) | |
$ | (192 | ) |
Note 10—Business Segment Information
The Company has two reportable business
segments, Telecom Platform Services and Consumer Phone Services. Operating segments that are not reportable individually are included
in All Other. The Company’s reportable segments are distinguished by types of service, customers and methods used to provide
their services. The operating results of these business segments are regularly reviewed by the Company’s chief operating
decision maker.
The Telecom Platform Services segment
provides retail telecommunications and payment offerings as well as wholesale international long distance traffic termination.
The Consumer Phone Services segment provides consumer local and long distance services in certain U.S. states. Telecom Platform
Services and Consumer Phone Services comprise the IDT Telecom division. Beginning in the three months ended January 31, 2015, All
Other includes Zedge Holdings, Inc. (“Zedge”), which owns and operates a platform for mobile phone consumers interested
in obtaining free, high quality games, apps, and mobile phone customization including ringtones, wallpapers, and notification sounds.
Comparative results have been reclassified and restated as if Zedge was included in All Other in all periods presented. All Other
also includes the Company’s real estate holdings and other, smaller, businesses. Until the sale of Fabrix in October 2014,
All Other also included Fabrix, a software development company offering a cloud-based scale-out storage and computing platform
optimized for big data, virtualization and media storage, processing and delivery. Corporate costs include certain services, such
as compensation, consulting fees, treasury and accounts payable, tax and accounting services, human resources and payroll, corporate
purchasing, corporate governance including Board of Directors’ fees, internal and external audit, investor relations, corporate
insurance, corporate legal, business development, and other corporate-related general and administrative expenses including, among
others, facilities costs, charitable contributions and travel, as well as depreciation expense on corporate assets. Corporate does
not generate any revenues, nor does it incur any direct cost of revenues.
The accounting policies of the segments
are the same as the accounting policies of the Company as a whole. The Company evaluates the performance of its business segments
based primarily on income (loss) from operations. IDT Telecom depreciation and amortization are allocated to Telecom Platform
Services and Consumer Phone Services because the related assets are not tracked separately by segment. There are no other significant
asymmetrical allocations to segments.
Operating results for the business
segments of the Company are as follows:
(in thousands) | |
Telecom Platform Services | | |
Consumer Phone Services | | |
All Other | | |
Corporate | | |
Total | |
Three Months Ended January 31, 2015 | |
| | |
| | |
| | |
| | |
| |
Revenues | |
$ | 388,970 | | |
$ | 2,243 | | |
$ | 2,960 | | |
$ | — | | |
$ | 394,173 | |
Income (loss) from operations | |
| 6,870 | | |
| 306 | | |
| (602 | ) | |
| (2,839 | ) | |
| 3,735 | |
Gain on sale of interest in Fabrix Systems Ltd. | |
| — | | |
| — | | |
| 484 | | |
| — | | |
| 484 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Three Months Ended January 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | |
Revenues | |
$ | 398,103 | | |
$ | 2,850 | | |
$ | 5,470 | | |
$ | — | | |
$ | 406,423 | |
Income (loss) from operations | |
| 12,392 | | |
| 421 | | |
| (1,333 | ) | |
| (3,906 | ) | |
| 7,574 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Six Months Ended January 31, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | |
Revenues | |
$ | 792,758 | | |
$ | 4,554 | | |
$ | 9,739 | | |
$ | — | | |
$ | 807,051 | |
Income (loss) from operations | |
| 12,540 | | |
| 662 | | |
| 75,936 | | |
| (5,794 | ) | |
| 83,344 | |
Gain on sale of interest in Fabrix Systems Ltd. | |
| — | | |
| — | | |
| 75,629 | | |
| — | | |
| 75,629 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Six Months Ended January 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | |
Revenues | |
$ | 810,922 | | |
$ | 5,866 | | |
$ | 10,305 | | |
$ | — | | |
$ | 827,093 | |
Income (loss) from operations | |
| 24,298 | | |
| 841 | | |
| (1,799 | ) | |
| (8,483 | ) | |
| 14,857 | |
Note 11—Legal Proceedings
On May 5, 2004, the Company filed
a complaint in the Supreme Court of the State of New York, County of New York, seeking injunctive relief and damages against Tyco
Group, S.A.R.L., Tyco Telecommunications (US) Inc. (f/k/a TyCom (US) Inc.), Tyco International, Ltd., Tyco International (US) Inc.,
and TyCom Ltd. (collectively “Tyco”). The Company alleged that Tyco breached a settlement agreement that it had entered
into with the Company to resolve certain disputes and civil actions among the parties. The Company alleged that Tyco did not provide
the Company, as required under the settlement agreement, free of charge and for the Company’s exclusive use, a 15-year indefeasible
right to use four Wavelengths in Ring Configuration (as defined in the settlement agreement) (“Wavelengths”) on a global
undersea fiber optic network that Tyco was deploying at that time. In June 2004, Tyco asserted several counterclaims against the
Company, alleging that the Company breached the settlement agreement and is liable for damages for allegedly refusing to accept
Tyco’s offer regarding the Wavelengths referenced in the settlement agreement and for making a public statement that Tyco
failed to provide the Company with the use of its Wavelengths. On August 19, 2008, the Appellate Division of the State of New York,
First Department, granted summary judgment in favor of Tyco dismissing the complaint and remanded the matter to the Supreme Court
for further proceedings. On October 22, 2009, the New York Court of Appeals issued an Order denying the Company’s appeal
and affirming the Appellate Division’s order. On or about November 17, 2009, the Company demanded that Tyco comply with its
obligations under the settlement agreement. After further discussions and meetings between the parties regarding Tyco’s obligations
under the settlement agreement, including its obligation to provide the use of the Wavelengths for fifteen years in a manner fully
consistent with that described in the settlement agreement, the Company filed a complaint on November 24, 2010 in the Supreme Court
of the State of New York, County of New York, against Tyco based upon the failure to comply with the obligations under the settlement
agreement, to negotiate the terms of an indefeasible right to use the Wavelengths in good faith, and to provide the Company with
the Wavelengths. The complaint alleges causes of action for breach of contract and breach of duty to negotiate in good faith. On
January 6, 2011, Tyco filed a motion to dismiss the complaint, which was granted. On July 22, 2011, the Company filed a notice
of appeal. After briefing was completed, oral argument was held on April 2, 2012. On December 27, 2012, the Appellate Division
issued an opinion and order reversing the order of the Supreme Court that granted Tyco’s motion to dismiss the Company’s
complaint. On April 30, 2013, Tyco filed a motion for reargument or, in the alternative, leave to appeal to the Court of Appeals,
which the Company opposed. On February 8, 2013, Tyco filed an answer with a counterclaim. On May 21, 2013, the Appellate Division
denied Tyco’s request for reargument but granted its request for leave to appeal to the Court of Appeals. On July 30, 2013,
Tyco filed its opening brief, the Company filed its response brief on September 16, 2013, and Tyco filed its reply on October 11,
2013. Oral argument was held on April 29, 2014. On June 5, 2014, the Court issued its decision, and reversed the order of the Appellate
Division, and ordered that the order of the Supreme Court should be reinstated. On July 7, 2014, the Company filed a motion for
reargument with the Court of Appeals, which Tyco opposed. On September 11, 2014, the Court denied the Company’s motion. The
Company is evaluating its options going forward.
In addition to the foregoing, the
Company is subject to other legal and employment-related proceedings that have arisen in the ordinary course of business and have
not been finally adjudicated. Although there can be no assurance in this regard, the Company believes that none of the other legal
proceedings to which the Company is a party will have a material adverse effect on the Company’s results of operations,
cash flows or financial condition.
Note 12—Commitments and Contingencies
Purchase Commitments
The Company had purchase commitments
of $5.5 million as of January 31, 2015, which includes commitments related to the renovations of the first four floors of the Company’s
building located at 520 Broad Street, Newark, New Jersey.
Letters of Credit
As of January 31, 2015, the Company
had letters of credit outstanding totaling $3.3 million for collateral to secure mortgage repayments and for IDT Telecom’s
business. The letters of credit outstanding as of January 31, 2015 expire in the twelve month period ending January 31, 2016.
Performance Bonds
IDT Payment Services and IDT Telecom
have performance bonds issued through third parties for the benefit of various states in order to comply with the states’
financial requirements for money remittance licenses and telecommunications resellers, respectively. At January 31, 2015, the Company
had aggregate performance bonds of $11.0 million outstanding.
Customer Deposits
As of January 31, 2015 and July 31,
2014, “Customer deposits” in the Company’s consolidated balance sheets included refundable customer deposits
of $64.6 million and $62.7 million, respectively, related to IDT Financial Services Ltd., the Company’s Gibraltar-based bank.
Substantially Restricted Cash and Cash Equivalents
The Company treats unrestricted cash
and cash equivalents held by IDT Payment Services and IDT Financial Services Ltd. as substantially restricted and unavailable for
other purposes. At January 31, 2015 and July 31, 2014, “Cash and cash equivalents” in the Company’s consolidated
balance sheets included an aggregate of $15.5 million and $12.9 million, respectively, held by IDT Payment Services and IDT Financial
Services Ltd. that was unavailable for other purposes.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents
consist of the following:
| |
January 31, 2015 | | |
July 31, 2014 | |
| |
(in thousands) | |
Restricted cash and cash equivalents-short-term | |
| | |
| |
Related to letters of credit | |
$ | 3,206 | | |
$ | 665 | |
IDT Financial Services customer deposits | |
| 65,745 | | |
| 64,415 | |
Other | |
| 246 | | |
| 626 | |
Total short-term | |
| 69,197 | | |
| 65,706 | |
Restricted cash and cash equivalents-long-term | |
| | | |
| | |
Related to letters of credit | |
| — | | |
| 2,763 | |
Total restricted cash and cash equivalents | |
$ | 69,197 | | |
$ | 68,469 | |
Estimated Liability to Straight Path Communications Inc.
On July 31, 2013, the Company
completed a pro rata distribution of the common stock of the Company’s subsidiary, Straight Path Communications Inc. (“Straight
Path”), to the Company’s stockholders (the “Straight Path Spin-Off”). The Company entered into various
agreements with Straight Path prior to the Straight Path Spin-Off including a Separation and Distribution Agreement to effect
the separation and provide a framework for the Company’s relationship with Straight Path after the spin-off. The Separation
and Distribution Agreement includes that the Company is obligated to reimburse Straight Path for the payment of any liabilities
of Straight Path arising or related to the period prior to the Straight Path Spin-Off. The following table summarizes the change
in the balance of the Company’s estimated liability to Straight Path, which is included in “Other current liabilities”
in the accompanying consolidated balance sheet:
| |
Six Months Ended January 31, 2015 | |
| |
(in thousands) | |
Balance, beginning of period | |
$ | 1,860 | |
Additional liability | |
| 1,532 | |
Adjustments | |
| (540 | ) |
Payments | |
| (1,136 | ) |
Balance, end of period | |
$ | 1,716 | |
Note 13—Other Operating Gains, Net
The following table summarizes the other operating
gains, net by business segment:
| |
Three Months Ended January 31, | | |
Six Months Ended January 31, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(in thousands) | |
Telecom Platform Services-gain related to legal matters | |
$ | — | | |
$ | 350 | | |
$ | — | | |
$ | 650 | |
All Other-gain on insurance claim (a) | |
| — | | |
| — | | |
| — | | |
| 571 | |
All Other-other | |
| — | | |
| — | | |
| — | | |
| 67 | |
Corporate-loss related to settlement (b) | |
| — | | |
| — | | |
| — | | |
| (79 | ) |
| |
| | | |
| | | |
| | | |
| | |
Total | |
$ | — | | |
$ | 350 | | |
$ | — | | |
$ | 1,209 | |
(a)
In the six months ended January 31, 2014, the Company received proceeds from insurance of $0.6 million related to water
damage to portions of the Company’s building and improvements at 520 Broad Street, Newark, New Jersey. The damage occurred
in a prior period. The Company recorded a gain of $0.6 million from this insurance claim.
(b)
In the six months ended January 31, 2014, the Company incurred a loss of $0.1 million in connection with the June 2013
settlement of outstanding claims and disputes with the former Chief Executive Officer of Straight Path Spectrum, Inc. and his related
parties.
Note 14—Other Income (Expense), Net
Other income (expense), net consists of the
following:
| |
Three Months Ended January 31, | | |
Six Months Ended January 31, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(in thousands) | |
Foreign currency transaction gains (losses) | |
$ | 322 | | |
$ | (3,157 | ) | |
$ | 1,089 | | |
$ | (4,362 | ) |
(Loss) gain on investments | |
| (455 | ) | |
| 117 | | |
| 1,402 | | |
| 853 | |
Other | |
| 1,100 | | |
| (25 | ) | |
| (201 | ) | |
| (105 | ) |
Total other income (expense), net | |
$ | 967 | | |
$ | (3,065 | ) | |
$ | 2,290 | | |
$ | (3,614 | ) |
Note 15—Recently Issued Accounting Standard Not
Yet Adopted
In May 2014, the Financial Accounting
Standards Board and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition standard
that will supersede most of the current revenue recognition guidance under U.S. GAAP and International Financial Reporting Standards
(“IFRS”). The goals of the revenue recognition project were to clarify and converge the revenue recognition principles
under U.S. GAAP and IFRS and to develop guidance that would streamline and enhance revenue recognition requirements. The Company
will adopt this standard on August 1, 2017. Entities have the option of using either a full retrospective or modified retrospective
approach for the adoption of the standard. The Company is evaluating the impact that the standard will have on its consolidated
financial statements.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
The
following information should be read in conjunction with the accompanying consolidated financial statements and the associated
notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management’s
Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year
ended July 31, 2014, as filed with the U.S. Securities and Exchange Commission (or SEC).
As
used below, unless the context otherwise requires, the terms “the Company,” “IDT,” “we,” “us,”
and “our” refer to IDT Corporation, a Delaware corporation, its predecessor, International Discount Telecommunications,
Corp., a New York corporation, and their subsidiaries, collectively.
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words “believes,”
“anticipates,” “expects,” “plans,” “intends,” and similar words and phrases. These
forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the
results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements,
other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those
discussed under Item 1A to Part I “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended
July 31, 2014. The forward-looking statements are made as of the date of this report and we assume no obligation to update the
forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking
statements. Investors should consult all of the information set forth in this report and the other information set forth from
time to time in our reports filed with the SEC pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934,
including our Annual Report on Form 10-K for the year ended July 31, 2014.
Overview
We
are a multinational holding company with operations primarily in the telecommunications and payment industries. We have two reportable
business segments, Telecom Platform Services and Consumer Phone Services. Telecom Platform Services provides retail telecommunications
and payment offerings as well as wholesale international long distance traffic termination. Consumer Phone Services provides consumer
local and long distance services in certain U.S. states. Telecom Platform Services and Consumer Phone Services comprise our IDT
Telecom division. Operating segments not reportable individually are included in All Other. All Other includes Zedge Holdings,
Inc., or Zedge, which owns and operates a platform for mobile phone consumers interested in obtaining free, high quality games,
apps, and mobile phone customization including ringtones, wallpapers, and notification sounds. All Other also includes our real
estate holdings and other, smaller, businesses. Until the sale of Fabrix Systems Ltd., or Fabrix, in October 2014, All Other also
included Fabrix, a software development company offering a cloud-based scale-out storage and computing platform optimized for
big data, virtualization and media storage, processing and delivery.
Since
our inception, we have derived the majority of our revenues and operating expenses from IDT Telecom’s businesses. IDT Telecom’s
revenues represented 98.8% of our total revenues in the six months ended January 31, 2015 and 2014.
Telecom
Platform Services, which represented 99.4% and 99.3% of IDT Telecom’s total revenues in the six months ended January 31,
2015 and 2014, respectively, markets and distributes multiple communications and payment services across four broad business verticals:
| ● | Retail
Communications provides international long-distance calling products primarily to foreign-born
communities worldwide, with its core markets in the United States; |
| ● | Wholesale
Termination Services is a global telecom carrier, terminating international long distance
calls around the world for Tier 1 fixed line and mobile network operators, as well as
other service providers; |
| ● | Payment
Services provides payment offerings, including international airtime top-up and international
money transfer sold over our Boss Revolution platform and other channels; and |
| ● | Hosted
Platform Solutions provides customized communications services that leverage our proprietary
networks, platforms and/or technology to cable companies and other service providers. |
Over
the past few years, the telecommunications industry has experienced a continued shift in demand away from traditional calling
cards and into wireless and Internet protocol (or IP)-based products and services, which, among other things, has, and continues
to contribute to the gradual erosion of our pricing power. The continued growth of these wireless and IP-based services has adversely
affected the sales of our traditional disposable prepaid calling card products as customers migrate from using cards to using
these alternative services. We expect pricing of wireless and IP-based services to continue to decrease, which may result in increased
substitution and increased pricing pressure on our prepaid calling products’ sales and margins. Further, the rate of change
to new offerings to meet consumers’ communications needs has accelerated in recent years and we must continue to develop
and offer new products and services to meet these needs and replace revenues from outdated offerings.
To
combat this trend, we have introduced in recent years new sources of revenue, such as Boss Revolution PIN-less and international
airtime top-up that have now largely replaced revenues from our traditional disposable calling cards. Boss Revolution PIN-less
allows our customers to call overseas without the need to enter a personal identification number. International airtime top-up,
which enables customers to purchase airtime for a prepaid mobile telephone in another country, appeals to residents of developed
countries such as the United States who regularly communicate with or financially support friends or family members in a developing
country. The addition of Boss Revolution PIN-less and international airtime top-up represent successful efforts to leverage our
existing capabilities, infrastructure and distribution network. Although Boss Revolution PIN-less and international airtime top-up
generally have lower gross margins than our traditional disposable calling cards, we believe that customers tend to continue using
these products over a longer period of time thereby allowing us to generate higher revenues and longer lifetime value per user.
The Boss Revolution platform provides us with a direct, real-time relationship with all of our participating retailers, resulting
in a cost-effective and adaptable distribution model that can rapidly respond to changes in the business environment. There can
be no assurance that we will continue to grow our Boss Revolution PIN-less and international airtime top-up sales, or that we
will be able to continue to generate new sources of revenue to offset the continuing decline in our traditional disposable calling
card revenues or possible future declines in Boss Revolution PIN-less or other sources of revenue.
The
wholesale carrier industry has numerous players competing for the same customers, primarily on the basis of price, products and
quality of service. In our Wholesale Termination Services business, we have historically had to pass along all or most of our
per-minute cost savings to our customers in the form of lower prices.
Critical
Accounting Policies
Our
consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted
in the United States of America, or U.S. GAAP. Our significant accounting policies are described in Note 1 to the consolidated
financial statements included in our Annual Report on Form 10-K for fiscal 2014. The preparation of financial statements requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as
well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of
management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change
in subsequent periods. Our critical accounting policies include those related to the allowance for doubtful accounts, goodwill,
valuation of long-lived and intangible assets, income taxes and regulatory agency fees, and IDT Telecom direct cost of revenues—disputed
amounts. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable
under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For additional
discussion of our critical accounting policies, see our Management’s Discussion and Analysis of Financial Condition
and Results of Operations in our Annual Report on Form 10-K for fiscal 2014.
Recently
Issued Accounting Standard Not Yet Adopted
In
May 2014, the Financial Accounting Standards Board and the International Accounting Standards Board jointly issued a comprehensive
new revenue recognition standard that will supersede most of the current revenue recognition guidance under U.S. GAAP and International
Financial Reporting Standards, or IFRS. The goals of the revenue recognition project were to clarify and converge the revenue
recognition principles under U.S. GAAP and IFRS and to develop guidance that would streamline and enhance revenue recognition
requirements. We will adopt this standard on August 1, 2017. Entities have the option of using either a full retrospective or
modified retrospective approach for the adoption of the standard. We are evaluating the impact that the standard will have on
our consolidated financial statements.
Results
of Operations
Three
and Six Months Ended January 31, 2015 Compared to Three and Six Months Ended January 31, 2014
We
evaluate the performance of our operating business segments based primarily on income (loss) from operations. Accordingly, the
income and expense line items below income (loss) from operations are only included in our discussion of the consolidated results
of operations.
IDT
Telecom—Telecom Platform Services and Consumer Phone Services Segments
| |
Three months ended
January 31, | | |
Change | | |
Six
months ended January 31, | | |
Change | |
| |
2015 | | |
2014 | | |
$ | | |
% | | |
2015 | | |
2014 | | |
$ | | |
% | |
| |
(in millions) | |
Revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Telecom Platform Services | |
$ | 389.0 | | |
$ | 398.1 | | |
$ | (9.1 | ) | |
| (2.3 | )% | |
$ | 792.8 | | |
$ | 810.9 | | |
$ | (18.1 | ) | |
| (2.2 | )% |
Consumer
Phone Services | |
| 2.2 | | |
| 2.9 | | |
| (0.7 | ) | |
| (21.3 | ) | |
| 4.5 | | |
| 5.9 | | |
| (1.4 | ) | |
| (22.4 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total revenues | |
$ | 391.2 | | |
$ | 401.0 | | |
$ | (9.8 | ) | |
| (2.4 | )% | |
$ | 797.3 | | |
$ | 816.8 | | |
$ | (19.5 | ) | |
| (2.4 | )% |
Revenues.
IDT Telecom revenues decreased in the three and six months ended January 31, 2015 compared to the similar periods in fiscal
2014 due to decreases in both Telecom Platform Services’ and Consumer Phone Services’ revenues. As a percentage of
IDT Telecom’s total revenues, Telecom Platform Services revenues increased from 99.3% in the six months ended January 31,
2014 to 99.4% in the six months ended January 31, 2015, and Consumer Phone Services revenues decreased from 0.7% in the six months
ended January 31, 2014 to 0.6% in the six months ended January 31, 2015.
Telecom
Platform Services’ revenues, minutes of use and average revenue per minute for the three and six months ended January 31,
2015 and 2014 consisted of the following:
| |
Three months ended
January 31, | | |
Change | | |
Six
months ended January 31, | | |
Change | |
| |
2015 | | |
2014 | | |
$/# | | |
% | | |
2015 | | |
2014 | | |
$/# | | |
% | |
| |
(in millions, except revenue per
minute) | |
Telecom Platform Services Revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Retail Communications | |
$ | 181.3 | | |
$ | 169.8 | | |
$ | 11.5 | | |
| 6.8 | % | |
$ | 364.0 | | |
$ | 342.3 | | |
$ | 21.7 | | |
| 6.3 | % |
Wholesale Termination Services | |
| 147.8 | | |
| 167.8 | | |
| (20.0 | ) | |
| (11.9 | ) | |
| 307.5 | | |
| 346.4 | | |
| (38.9 | ) | |
| (11.3 | ) |
Payment Services | |
| 50.0 | | |
| 48.9 | | |
| 1.1 | | |
| 2.2 | | |
| 101.1 | | |
| 99.0 | | |
| 2.1 | | |
| 2.2 | |
Hosted
Platform Solutions | |
| 9.9 | | |
| 11.6 | | |
| (1.7 | ) | |
| (14.8 | ) | |
| 20.2 | | |
| 23.2 | | |
| (3.0 | ) | |
| (13.0 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total Telecom
Platform Services revenues | |
$ | 389.0 | | |
$ | 398.1 | | |
$ | (9.1 | ) | |
| (2.3 | )% | |
$ | 792.8 | | |
$ | 810.9 | | |
$ | (18.1 | ) | |
| (2.2 | )% |
Minutes of use | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Retail Communications | |
| 2,422 | | |
| 2,401 | | |
| 21 | | |
| 0.9 | % | |
| 4,854 | | |
| 4,791 | | |
| 63 | | |
| 1.3 | % |
Wholesale Termination Services | |
| 4,925 | | |
| 4,759 | | |
| 166 | | |
| 3.5 | | |
| 9,772 | | |
| 9,451 | | |
| 321 | | |
| 3.4 | |
Hosted
Platform Solutions | |
| 185 | | |
| 199 | | |
| (14 | ) | |
| (7.2 | ) | |
| 388 | | |
| 406 | | |
| (18 | ) | |
| (4.6 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total
minutes of use | |
| 7,532 | | |
| 7,359 | | |
| 173 | | |
| 2.3 | % | |
| 15,014 | | |
| 14,648 | | |
| 366 | | |
| 2.5 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Average revenue per minute | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Retail Communications | |
$ | 0.0749 | | |
$ | 0.0707 | | |
$ | 0.0042 | | |
| 5.9 | % | |
$ | 0.0750 | | |
$ | 0.0714 | | |
$ | 0.0036 | | |
| 5.0 | % |
Wholesale Termination Services | |
| 0.0300 | | |
| 0.0353 | | |
| (0.0053 | ) | |
| (14.9 | ) | |
| 0.0315 | | |
| 0.0367 | | |
| (0.0052 | ) | |
| (14.2 | ) |
Retail
Communications’ revenue grew 6.8%and 6.3% in the three and six months ended January 31, 2015, respectively, compared to
the similar periods in fiscal 2014. Retail Communications’ minutes of use increased 0.9% and 1.3% in the three and six months
ended January 31, 2015, respectively, compared to the similar periods in fiscal 2014, driven by the volume growth in the U.S.,
which more than offset the decrease in minutes of use in Europe and Asia. Retail Communications’ minutes of use in South
America increased in the three months ended January 31, 2015 compared to the similar period in fiscal 2014 and decreased in the
six months ended January 31, 2015 compared to the similar period in fiscal 2014. Retail Communications’ revenue and minutes
of use growth was led by increased penetration of Boss Revolution within our U.S. retail distribution network, partially offset
by continued declines in sales of traditional disposable calling cards and retail sales in Europe. Retail sales in South America
and Asia increased in the three months ended January 31, 2015 compared to the similar period in fiscal 2014 and decreased in the
six months ended January 31, 2015 compared to the similar period in fiscal 2014. Boss Revolution continues to attract new customers,
and we are working to sustain that momentum by increasing our sales and marketing efforts in fiscal 2015. In fiscal 2014, we acquired
the assets of an over-the-top messaging provider, and we expect to introduce messaging within the Boss Revolution app in the second
half of calendar 2015. Retail Communications’ revenue comprised 45.9% and 42.2% of Telecom Platform Services’ revenue
in the six months ended January 31, 2015 and 2014, respectively.
Wholesale
Termination Services’ revenue decreased 11.9% and 11.3% in the three and six months ended January 31, 2015, respectively,
compared to the similar periods in fiscal 2014 although minutes of use increased 3.5% and 3.4% in the same comparable periods.
The revenue decreased because the traffic mix in the three and six months ended January 31, 2015 tilted towards lower revenue
per minute destinations compared to the similar periods in fiscal 2014. In addition, in the three and six months ended January
31, 2015 compared to the similar periods in fiscal 2014, arbitrage pricing opportunities in Latin America resulting from disparities
in local currency exchange rates continued to decline, and revenue denominated in foreign currencies, particularly the Euro, were
negatively impacted by the stronger U.S. dollar. Wholesale Termination Services’ minutes of use increased in the three and
six months ended January 31, 2015 compared to the similar periods in fiscal 2014 due to an increase in minutes of use from carrier
sales. In addition, in the three months ended January 31, 2015 compared to the similar period in fiscal 2014, the increase in
Wholesale Termination Services’ minutes of use included an increase in minutes of use from our web-based prepaid termination
service. The increase in Wholesale Termination Services’ minutes of use in the six months ended January 31, 2015 compared
to the similar period in fiscal 2014 was partially offset by a decrease in minutes of use in our web-based prepaid termination
service. Wholesale Termination Services’ revenue comprised 38.8% and 42.7% of Telecom Platform Services’ revenue in
the six months ended January 31, 2015 and 2014, respectively.
Payment
Services’ revenue increased 2.2% in the three and six months ended January 31, 2015 compared to the similar periods in fiscal
2014 due to an increase in international and domestic airtime top-up revenue, as well as an increase in revenue from our international
money transfer service. Future growth will be, in large part, contingent upon our ability to enter into new international airtime
top-up partnerships with wireless providers, as well as continued growth of international airtime top-up volume within existing
relationships and the introduction of new payment offerings through the Boss Revolution platform. In fiscal 2014, we initiated
an international money transfer service on a limited basis over our Boss Revolution platform. As of January 31, 2015, we had money
transmitter licenses in 45 of the 46 states where they are required and we have applied, as well as in Puerto Rico and Washington,
D.C. Payment Services’ revenue comprised 12.8% and 12.2% of Telecom Platform Services’ revenue in the six months ended
January 31, 2015 and 2014, respectively.
Hosted
Platform Solutions’ revenue declined 14.8% and 13.0% in the three and six months ended January 31, 2015, respectively, compared
to the similar periods in fiscal 2014. The decline was due to decreases in revenues from managed services and from our cable telephony
business. Within our cable telephony business, we renewed multi-year contracts with key cable telephony customers in the
second half of fiscal 2014, but at lower rates, reflecting the long-term decline in the underlying costs of hosted telephony services.
In addition, several of our other hosted managed services operators are continuing to experience attrition in their subscriber
customer base. Hosted Platform Solutions’ revenue comprised 2.5% and 2.9% of Telecom Platform Services’ revenue in
the six months ended January 31, 2015 and 2014, respectively. Hosted Platform Solutions’ minutes of use decreased 7.2% and
4.6% in the three and six months ended January 31, 2015, respectively, compared to the similar periods in fiscal 2014, primarily
as a result of the decline in minutes of use from managed services and cable telephony customers. In general, since our Hosted
Platform Solutions business’ revenues and cash flows are driven far more by the number of existing subscribers in the form
of a per-subscriber fee rather than by subscriber minutes of use, we do not view Hosted Platform Solutions minutes of use as a
very meaningful metric for evaluating that business’ performance.
Consumer
Phone Services’ revenues declined 21.3% and 22.4% in the three and six months ended January 31, 2015, respectively, compared
to the similar periods in fiscal 2014 as we continued to operate the business in harvest mode. This strategy has been in effect
since calendar 2005 when the FCC decided to terminate the UNE-P pricing regime, which resulted in significantly inferior economics
in the operating model for this business. The customer base for our bundled, unlimited local and long distance services business
was approximately 5,600 as of January 31, 2015 compared to 6,900 as of January 31, 2014. We currently offer local service in the
following 11 states: New York, New Jersey, Pennsylvania, Maryland, Delaware, Massachusetts, New Hampshire, West Virginia, Maine,
Rhode Island and California. In addition, the customer base for our long distance-only services was approximately 25,300 as of
January 31, 2015 compared to 31,900 as of January 31, 2014. We anticipate that Consumer Phone Services’ customer base and
revenues will continue to decline. Minutes of use relating to our Consumer Phone Services segment is not tracked as a meaningful
business metric as the domestic traffic generated by this segment is not carried on our network, and the international traffic
generated by this segment, though carried on our own network, is insignificant.
| |
Three months ended
January 31, | | |
Change | | |
Six
months ended January 31, | | |
Change | |
| |
2015 | | |
2014 | | |
$ | | |
% | | |
2015 | | |
2014 | | |
$ | | |
% | |
| |
(in millions) | |
Direct cost of revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Telecom Platform Services | |
$ | 327.4 | | |
$ | 333.1 | | |
$ | (5.7 | ) | |
| (1.7 | )% | |
$ | 669.0 | | |
$ | 681.4 | | |
$ | (12.4 | ) | |
| (1.8 | )% |
Consumer
Phone Services | |
| 1.1 | | |
| 1.3 | | |
| (0.2 | ) | |
| (18.3 | ) | |
| 2.1 | | |
| 2.7 | | |
| (0.6 | ) | |
| (20.6 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total direct
cost of revenues | |
$ | 328.5 | | |
$ | 334.4 | | |
$ | (5.9 | ) | |
| (1.8 | )% | |
$ | 671.1 | | |
$ | 684.1 | | |
$ | (13.0 | ) | |
| (1.9 | )% |
| |
Three
months ended January 31, | | |
| | |
Six
months ended January 31, | | |
| |
| |
2015 | | |
2014 | | |
Change | | |
2015 | | |
2014 | | |
Change | |
Direct cost of revenues as a percentage
of revenues | |
| | |
| | |
| | |
| | |
| | |
| |
Telecom Platform
Services | |
| 84.2 | % | |
| 83.7 | % | |
| 0.5 | % | |
| 84.4 | % | |
| 84.0 | % | |
| 0.4 | % |
Consumer
Phone Services | |
| 47.3 | | |
| 45.6 | | |
| 1.7 | | |
| 46.5 | | |
| 45.4 | | |
| 0.1 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
| 84.0 | % | |
| 83.4 | % | |
| 0.6 | % | |
| 84.2 | % | |
| 83.7 | % | |
| 0.5 | % |
Direct
Cost of Revenues. Direct cost of revenues in Telecom Platform Services decreased in the three and six months ended January
31, 2015 compared to the similar periods in fiscal 2014. Direct cost of revenues as a percentage of revenues in Telecom Platform
Services increased 50 and 40 basis points in the three and six months ended January 31, 2015, respectively, compared to the similar
periods in fiscal 2014 primarily because of the loss of revenue from the relatively high margin Latin American arbitrage opportunity,
the decline in margin contribution from the cable telephony business, and pricing pressure on airtime top-up offerings.
Direct
cost of revenues in our Consumer Phone Services segment decreased the three and six months ended January 31, 2015 compared to
the similar periods in fiscal 2014 primarily as a result of the declining customer base.
| |
Three months ended
January 31, | | |
Change | | |
Six months ended
January 31, | | |
Change | |
| |
2015 | | |
2014 | | |
$ | | |
% | | |
2015 | | |
2014 | | |
$ | | |
% | |
| |
(in millions) | |
Selling, general and administrative expenses | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Telecom Platform Services | |
$ | 50.4 | | |
$ | 49.5 | | |
$ | 0.9 | | |
| 1.9 | % | |
$ | 101.6 | | |
$ | 99.2 | | |
$ | 2.4 | | |
| 2.4 | % |
Consumer
Phone Services | |
| 0.9 | | |
| 1.1 | | |
| (0.2 | ) | |
| (22.6 | ) | |
| 1.8 | | |
| 2.4 | | |
| (0.6 | ) | |
| (24.7 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total selling,
general and administrative expenses | |
$ | 51.3 | | |
$ | 50.6 | | |
$ | 0.7 | | |
| 1.3 | % | |
$ | 103.4 | | |
$ | 101.6 | | |
$ | 1.8 | | |
| 1.8 | % |
Selling,
General and Administrative. The increase in selling, general and administrative expenses in our Telecom Platform Services
segment in the three months ended January 31, 2015 compared to the similar period in fiscal 2014 was primarily due to an increase
in marketing and advertising costs as well as higher levels of expenditures in our international money transfer service business.
The increase in selling, general and administrative expenses in our Telecom Platform Services segment in the six months ended
January 31, 2015 compared to the similar period in fiscal 2014 was partially due to increases in employee compensation and internal
commissions, which was the result of annual payroll increases for a larger workforce, as well as expansion of our retail direct
sales force in the U.S. The increase was also due to an increase in marketing and advertising costs. The increase was partially
offset by decreases in stock-based compensation and costs associated with certain legal matters. As a percentage of Telecom Platform
Services’ revenue, Telecom Platform Services’ selling, general and administrative expenses increased to 13.0% from
12.4% in the three months ended January 31, 2015 and 2014, respectively, and increased to 12.8% from 12.2% in the six months ended
January 31, 2015 and 2014, respectively.
Selling,
general and administrative expenses in our Consumer Phone Services segment decreased in the three and six months ended January
31, 2015 compared to the similar periods in fiscal 2014 as the cost structure for this segment continued to be right-sized to
the needs of its declining revenue base.
| |
Three months ended
January 31, | | |
Change | | |
Six months ended
January 31, | | |
Change | |
| |
2015 | | |
2014 | | |
$ | | |
% | | |
2015 | | |
2014 | | |
$ | | |
% | |
| |
(in millions) | |
Depreciation and amortization | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Telecom Platform Services | |
$ | 3.9 | | |
$ | 3.4 | | |
$ | 0.5 | | |
| 15.0 | % | |
$ | 7.7 | | |
$ | 6.7 | | |
$ | 1.0 | | |
| 16.1 | % |
Consumer
Phone Services | |
| — | | |
| — | | |
| — | | |
| (76.8 | ) | |
| — | | |
| — | | |
| — | | |
| (76.8 | ) |
Total depreciation and amortization | |
$ | 3.9 | | |
$ | 3.4 | | |
$ | 0.5 | | |
| 15.0 | % | |
$ | 7.7 | | |
$ | 6.7 | | |
$ | 1.0 | | |
| 16.1 | % |
Depreciation
and Amortization. The increase in depreciation and amortization expense in the three and six months ended January 31,
2015 compared to the similar periods in fiscal 2014 was due to increases in depreciation of capitalized costs of consultants and
employees developing internal use software.
| |
Three months ended
January 31, | | |
Change | | |
Six months ended
January 31, | | |
Change | |
| |
2015 | | |
2014 | | |
$ | | |
% | | |
2015 | | |
2014 | | |
$ | | |
% | |
| |
(in millions) | |
Severance expense | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Telecom Platform Services | |
$ | 0.3 | | |
$ | — | | |
$ | 0.3 | | |
| nm | | |
$ | 1.9 | | |
$ | — | | |
$ | 1.9 | | |
| nm | |
Consumer
Phone Services | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total severance
expense | |
$ | 0.3 | | |
$ | — | | |
$ | 0.3 | | |
| nm | | |
$ | 1.9 | | |
$ | — | | |
$ | 1.9 | | |
| nm | |
nm—not
meaningful
Severance
expense. Severance expense in the three and six months ended January 31, 2015 was due to a downsizing of certain Telecom Platform
Services’ sales and administrative functions in Europe and the U.S. Approximately 20 employees were terminated in the six
months ended January 31, 2015 as a result of the downsizing.
Other
Operating Gain. The Telecom Platform Services segment’s income from operations in the three and six months ended
January 31, 2014 included gains of $0.4 million and $0.7 million, respectively, related to a legal matter.
| |
Three months ended
January 31, | | |
Change | | |
Six months ended
January 31, | | |
Change | |
| |
2015 | | |
2014 | | |
$ | | |
% | | |
2015 | | |
2014 | | |
$ | | |
% | |
| |
(in millions) | |
Income from operations | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Telecom Platform Services | |
$ | 6.9 | | |
$ | 12.4 | | |
$ | (5.5 | ) | |
| (44.6 | )% | |
$ | 12.5 | | |
$ | 24.3 | | |
$ | (11.8 | ) | |
| (48.4 | )% |
Consumer
Phone Services | |
| 0.3 | | |
| 0.4 | | |
| (0.1 | ) | |
| (27.2 | ) | |
| 0.7 | | |
| 0.8 | | |
| (0.1 | ) | |
| (21.4 | ) |
Total income
from operations | |
$ | 7.2 | | |
$ | 12.8 | | |
$ | (5.6 | ) | |
| (44.0 | )% | |
$ | 13.2 | | |
$ | 25.1 | | |
$ | (11.9 | ) | |
| (47.5 | )% |
All
Other
Currently,
we report aggregate results for all of our operating businesses other than IDT Telecom in All Other. Beginning in the second quarter
of fiscal 2015, Zedge is included in All Other. Comparative results have been reclassified and restated as if Zedge was included
in All Other in all periods presented. In addition, Fabrix was included in All Other until it was sold in October 2014, therefore
the results of operations only includes two months in fiscal 2015 compared to three and six months in fiscal 2014.
| |
Three months ended
January 31, | | |
Change | | |
Six months ended
January 31, | | |
Change | |
| |
2015 | | |
2014 | | |
$ | | |
% | | |
2015 | | |
2014 | | |
$ | | |
% | |
| |
(in
millions) | |
Revenues | |
$ | 3.0 | | |
$ | 5.5 | | |
$ | (2.5 | ) | |
| (45.9 | )% | |
$ | 9.7 | | |
$ | 10.3 | | |
$ | (0.6 | ) | |
| (5.5 | )% |
Direct cost of
revenues | |
| (0.3 | ) | |
| (0.9 | ) | |
| 0.6 | | |
| 66.5 | | |
| (1.4 | ) | |
| (1.5 | ) | |
| 0.1 | | |
| 6.1 | |
Selling, general
and administrative | |
| (3.3 | ) | |
| (2.7 | ) | |
| (0.6 | ) | |
| (18.6 | ) | |
| (5.2 | ) | |
| (5.0 | ) | |
| (0.2 | ) | |
| (2.5 | ) |
Depreciation | |
| (0.5 | ) | |
| (0.6 | ) | |
| 0.1 | | |
| 20.9 | | |
| (1.1 | ) | |
| (1.3 | ) | |
| 0.2 | | |
| 12.6 | |
Research and development | |
| — | | |
| (2.6 | ) | |
| 2.6 | | |
| 100.0 | | |
| (1.7 | ) | |
| (4.9 | ) | |
| 3.2 | | |
| 66.0 | |
Gain on sale of
interest in Fabrix Systems Ltd. | |
| 0.5 | | |
| — | | |
| 0.5 | | |
| nm | | |
| 75.6 | | |
| — | | |
| 75.6 | | |
| nm | |
Other
operating gain | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 0.6 | | |
| (0.6 | ) | |
| (100.0 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
(Loss)
income from operations | |
$ | (0.6 | ) | |
$ | (1.3 | ) | |
$ | 0.7 | | |
| 54.9 | % | |
$ | 75.9 | | |
$ | (1.8 | ) | |
$ | 77.7 | | |
| nm | |
nm—not meaningful
Gain
on Sale of Interest in Fabrix Systems Ltd. On October 8, 2014, we completed the sale of our interest in Fabrix to Telefonaktiebolget
LM Ericsson (publ), or Ericsson. The final sale price for 100% of the shares in Fabrix was $95 million in cash, excluding transaction
costs and working capital and other adjustments. We owned approximately 78% of Fabrix on a fully diluted basis. Our share of the
sale price was $68.0 million, after reflecting the impact of working capital and other adjustments. We and the other shareholders
placed $13.0 million of the proceeds in escrow for the resolution of post-closing claims that may arise. Any unclaimed escrow
balance will be released in two tranches over a period of 18 months. In the three months ended January 31, 2015, we recorded gain
on the sale of our interest in Fabrix of $0.5 million, which represented our share of working capital and other adjustments. In
the six months ended January 31, 2015, we recorded a gain on the sale of our interest in Fabrix of $75.6 million.
Other
Operating Gain. In the six months ended January 31, 2014, we received proceeds from insurance of $0.6 million related
to water damage to portions of our building and improvements at 520 Broad Street, Newark, New Jersey. The damage occurred in a
prior period. We recorded a gain of $0.6 million from this insurance claim.
Following
is the results of operations of Fabrix, which was included in All Other until it was sold in October 2014:
| |
Three months ended
January 31, | | |
Change | | |
Six months ended
January 31, | | |
Change | |
| |
2015 | | |
2014 | | |
$ | | |
% | | |
2015 | | |
2014 | | |
$ | | |
% | |
Fabrix | |
(in millions) | |
Revenues | |
$ | — | | |
$ | 3.3 | | |
$ | (3.3 | ) | |
| (100.0 | )% | |
$ | 4.2 | | |
$ | 6.3 | | |
$ | (2.1 | ) | |
| (33.4 | )% |
Direct cost of revenues | |
| — | | |
| 0.6 | | |
| (0.6 | ) | |
| (100.0 | ) | |
| 0.9 | | |
| 1.1 | | |
| (0.2 | ) | |
| (16.8 | ) |
Selling, general and administrative | |
| — | | |
| 1.1 | | |
| (1.1 | ) | |
| (100.0 | ) | |
| 0.6 | | |
| 1.9 | | |
| (1.3 | ) | |
| (68.8 | ) |
Depreciation | |
| — | | |
| 0.1 | | |
| (0.1 | ) | |
| (100.0 | ) | |
| 0.1 | | |
| 0.2 | | |
| (0.1 | ) | |
| (61.7 | ) |
Research
and development | |
| — | | |
| 2.6 | | |
| (2.6 | ) | |
| (100.0 | ) | |
| 1.7 | | |
| 4.9 | | |
| (3.2 | ) | |
| (66.0 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
(Loss) income
from operations | |
$ | — | | |
$ | (1.1 | ) | |
$ | 1.1 | | |
| 100.0 | % | |
$ | 0.9 | | |
$ | (1.8 | ) | |
$ | 2.7 | | |
| 154.0 | % |
Corporate
| |
Three months ended
January 31, | | |
Change | | |
Six months ended
January 31, | | |
Change | |
| |
2015 | | |
2014 | | |
$ | | |
% | | |
2015 | | |
2014 | | |
$ | | |
% | |
| |
(in millions) | |
General and administrative
expenses | |
$ | 2.8 | | |
$ | 3.9 | | |
$ | (1.1 | ) | |
| (27.3 | )% | |
$ | 5.8 | | |
$ | 8.4 | | |
$ | (2.6 | ) | |
| (30.9 | )% |
Other
operating loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 0.1 | | |
| (0.1 | ) | |
| (100.0 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loss
from operations | |
$ | 2.8 | | |
$ | 3.9 | | |
$ | (1.1 | ) | |
| (27.3 | )% | |
$ | 5.8 | | |
$ | 8.5 | | |
$ | (2.7 | ) | |
| (31.7 | )% |
Corporate costs include compensation,
consulting fees, treasury and accounts payable, tax and accounting services, human resources and payroll, corporate purchasing,
corporate governance including Board of Directors’ fees, internal and external audit, investor relations, corporate insurance,
corporate legal, business development, and other corporate-related general and administrative expenses, including, among others,
facilities costs, charitable contributions and travel, as well as depreciation expense on corporate assets. Corporate does not
generate any revenues, nor does it incur any direct cost of revenues.
General and Administrative. The
decrease in Corporate general and administrative expenses in the three and six months ended January 31, 2015 compared to the similar
periods in fiscal 2014 was primarily due to decreases in stock-based compensation, payroll and benefits expense and legal fees.
In addition, the decrease in Corporate general and administrative expenses in the six months ended January 31, 2015 compared to
the similar period in fiscal 2014 was due to a decrease in the charitable contributions accrual. Corporate general and administrative
expenses in the three and six months ended January 31, 2015 and 2014 are net of amounts billed to our former subsidiaries Genie
Energy Ltd., or Genie, which was spun-off in October 2011, and Straight Path Communications Inc., or Straight Path, which was spun-off
in July 2013. The fees charged to Genie, net of amounts charged by Genie to us, were $0.8 million and $1.1 million in the three
months ended January 31, 2015 and 2014, respectively, and $1.5 million and $1.7 million in the six months ended January 31, 2015
and 2014, respectively. The fees charged to Straight Path were $0.3 million in both the three months ended January 31, 2015 and
2014 and $1.1 million and $0.6 million in the six months ended January 31, 2015 and 2014, respectively. As a percentage of our
total consolidated revenues, Corporate general and administrative expenses was 0.7% and 1.0% in the three and six months ended
January 31, 2015 and 2014, respectively.
Consolidated
In February and March 2015, we completed
a reduction of approximately 7% of our global compensation costs. The cost-cutting initiative is expected to reduce our current
selling, general and administrative expense run rate by approximately $10 million per year. As a result of this reduction in headcount,
we expect to incur severance expense of approximately $6.6 million in the third quarter of fiscal 2015.
The following is a discussion of our
consolidated stock-based compensation expense, and our consolidated income and expense line items below income (loss) from operations.
Stock-Based Compensation Expense. Stock-based
compensation expense included in consolidated selling, general and administrative expenses was $2.2 million and $1.6 million in
the three months ended January 31, 2015 and 2014, respectively, and $3.0 million and $4.1 million in the six months ended January
31, 2015 and 2014, respectively. At January 31, 2015, unrecognized compensation cost related to non-vested stock-based compensation,
including stock options and restricted stock, was an aggregate of $4.7 million. The unrecognized compensation cost is expected
to be recognized over the remaining vesting period that ends in December 2020.
On March 11, 2015, the Compensation
Committee of our Board of Directors approved an equity grant of 0.3 million restricted shares of our Class B common stock to our
employees, including executive officers. The shares are expected to vest 50% in January 2017 and 50% in July 2018.
| |
Three months ended
January 31, | | |
Change | | |
Six months ended
January 31, | | |
Change | |
| |
2015 | | |
2014 | | |
$ | | |
% | | |
2015 | | |
2014 | | |
$ | | |
% | |
| |
(in millions) | |
Income from operations | |
$ | 3.7 | | |
$ | 7.6 | | |
$ | (3.9 | ) | |
| (50.7 | )% | |
$ | 83.3 | | |
$ | 14.8 | | |
$ | 68.5 | | |
| 461.0 | % |
Interest (expense)
income, net | |
| (0.1 | ) | |
| 0.1 | | |
| (0.2 | ) | |
| (138.1 | ) | |
| (0.1 | ) | |
| 0.1 | | |
| (0.2 | ) | |
| (263.8 | ) |
Other income (expense),
net | |
| 1.0 | | |
| (3.1 | ) | |
| 4.1 | | |
| 131.5 | | |
| 2.3 | | |
| (3.6 | ) | |
| 5.9 | | |
| 163.4 | |
Provision
for income taxes | |
| (1.9 | ) | |
| (1.7 | ) | |
| (0.2 | ) | |
| (16.1 | ) | |
| (2.4 | ) | |
| (4.3 | ) | |
| 1.9 | | |
| 44.4 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| 2.7 | | |
| 2.9 | | |
| (0.2 | ) | |
| (7.3 | ) | |
| 83.1 | | |
| 7.0 | | |
| 76.1 | | |
| nm | |
Net
income attributable to noncontrolling interests | |
| (0.2 | ) | |
| (0.4 | ) | |
| 0.2 | | |
| 43.6 | | |
| (0.4 | ) | |
| (0.9 | ) | |
| 0.5 | | |
| 53.9 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
income attributable to IDT Corporation | |
$ | 2.5 | | |
$ | 2.5 | | |
$ | — | | |
| (1.0 | )% | |
$ | 82.7 | | |
$ | 6.1 | | |
$ | 76.6 | | |
| nm | |
nm—not meaningful
Interest (Expense) Income, net. The
change in interest (expense) income, net in the three and six months ended January 31, 2015 compared to the similar periods in
fiscal 2014 was due to a decrease in interest income as well as an increase in interest expense.
Other Income (Expense), net. Other
income (expense), net consists of the following:
| |
Three months ended January 31, | | |
Six months ended January 31, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(in millions) | |
Foreign currency transaction gains (losses) | |
$ | 0.3 | | |
$ | (3.2 | ) | |
$ | 1.1 | | |
$ | (4.4 | ) |
(Loss) gain on investments | |
| (0.4 | ) | |
| 0.1 | | |
| 1.4 | | |
| 0.9 | |
Other | |
| 1.1 | | |
| — | | |
| (0.2 | ) | |
| (0.1 | ) |
| |
| | | |
| | | |
| | | |
| | |
Total other income (expense), net | |
$ | 1.0 | | |
$ | (3.1 | ) | |
$ | 2.3 | | |
$ | (3.6 | ) |
Income Taxes. The $75.6 million
gain on the sale of our interest in Fabrix in the six months ended January 31, 2015 was recorded by a wholly-owned non-U.S. subsidiary.
The gain is not taxable in the subsidiary’s tax domicile and is not subject to U.S. tax until distributed. There is no plan
to distribute the proceeds of sale. The increase in income tax expense in the three months ended January 31, 2015 compared to the
similar period in fiscal 2014 was primarily due to an increase in income earned in jurisdictions with higher tax rates in the three
months ended January 31, 2015 compared to the similar period in fiscal 2014. The decline in income tax expense in the six months
ended January 31, 2015 compared to the similar period in fiscal 2014 was primarily due to the decrease in income before income
taxes excluding the gain on the sale of our interest in Fabrix in the six months ended January 31, 2015 compared to the similar
period in fiscal 2014.
Net
Income Attributable to Noncontrolling Interests. The decrease in the net income attributable to noncontrolling interests in
the three months ended January 31, 2015 compared to the similar period in fiscal 2014 was due to the decrease in net income of
certain IDT Telecom subsidiaries and the change in Zedge’s results of operations from net income to net loss, partially offset
by the effect of the deconsolidation of Fabrix in October 2014. The decrease in the net income attributable to noncontrolling interests
in the six months ended January 31, 2015 compared to the similar period in fiscal 2014 was due to the decrease in net income of
certain IDT Telecom subsidiaries, the increase in Fabrix’ net loss and the change in Zedge’s results of operations
from net income to net loss.
Liquidity and Capital Resources
General
We currently expect our cash from operations
in the next twelve months and the balance of cash, cash equivalents and marketable securities that we held as of January 31, 2015
to be sufficient to meet our currently anticipated working capital and capital expenditure requirements during the twelve month
period ending January 31, 2016.
As of January 31, 2015, we had cash,
cash equivalents and marketable securities of $152.2 million and working capital (current assets in excess of current liabilities)
of $2.7 million. As of January 31, 2015, we also had $10.9 million in investments in hedge funds, of which less than $0.1
million was included in “Other current assets” and $10.9 million was included in “Investments” in our consolidated
balance sheet.
We treat unrestricted cash and cash
equivalents held by IDT Payment Services and IDT Financial Services Ltd. as substantially restricted and unavailable for other
purposes. At January 31, 2015, “Cash and cash equivalents” in our consolidated balance sheet included an aggregate
of $15.5 million held by IDT Payment Services and IDT Financial Services Ltd. that was unavailable for other purposes.
As of January 31, 2015, we had restricted
cash and cash equivalents of $69.2 million, all of which was included in “Restricted cash and cash equivalents—short
term” in our consolidated balance sheet. Our restricted cash and cash equivalents primarily include restricted balances pursuant
to banking regulatory and other requirements and customer deposits related to IDT Financial Services Ltd., our Gibraltar-based
bank.
| |
Six months ended January 31, | |
| |
2015 | | |
2014 | |
| |
(in millions) | |
Cash flows provided by (used in): | |
| | |
| |
Operating activities | |
$ | 21.0 | | |
$ | 9.1 | |
Investing activities | |
| 15.7 | | |
| (7.8 | ) |
Financing activities | |
| (50.6 | ) | |
| (14.1 | ) |
Effect of exchange rate changes on cash and cash equivalents | |
| (6.8 | ) | |
| (0.6 | ) |
| |
| | | |
| | |
Decrease in cash and cash equivalents | |
$ | (20.7 | ) | |
$ | (13.4 | ) |
Operating Activities
Our cash flow from operations varies
significantly from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash
receipts and payments, specifically trade accounts receivable and trade accounts payable.
Our Separation and Distribution Agreement
with Straight Path includes, among other things, our obligation to reimburse Straight Path for the payment of any liabilities of
Straight Path arising or related to the period prior to the spin-off. In the six months ended January 31, 2015, we paid $1.1 million
in connection with this obligation. At January 31, 2015, our estimated liability for this obligation was $1.7 million.
Investing Activities
Our capital expenditures were $13.9
million and $7.8 million in the six months ended January 31, 2015 and 2014, respectively. We currently anticipate that total capital
expenditures for the twelve month period ending January 31, 2016 will be approximately $20.3 million, which includes expenditures
for the renovations of the first four floors of our building located at 520 Broad Street, Newark, New Jersey. We expect to fund
our capital expenditures with our net cash provided by operating activities and cash, cash equivalents and marketable securities
on hand.
On October 8, 2014, we completed the
sale of our interest in Fabrix to Ericsson. The final sale price for 100% of the shares in Fabrix was $95 million in cash, excluding
transaction costs and working capital and other adjustments. We owned approximately 78% of Fabrix on a fully diluted basis. Our
share of the sale price was $68.0 million, after reflecting the impact of working capital and other adjustments. As of January
31, 2015, we had received cash of $36.0 million and had aggregate receivables of $32.0 million, of which $28.3 million was classified
as “Receivable from sale of interest in Fabrix Systems Ltd.” and $3.7 million was included in “Other assets”
in our consolidated balance sheet. We and the other shareholders placed $13.0 million of the proceeds in escrow for the resolution
of post-closing claims that may arise. Any unclaimed escrow balance will be released in two tranches over a period of 18 months.
In the six months ended January 31, 2015, we recorded a gain on the sale of our interest in Fabrix of $75.6 million.
In the three months ended January 31,
2015 and 2014, we used cash of $0.1 million and nil, respectively, for additional investments.
We received $43,000 and $1.0 million
in the six months ended January 31, 2015 and 2014, respectively, from the sale and redemption of certain of our investments, including
investments in hedge funds.
Proceeds from insurance of $0.6 million
in the six months ended January 31, 2014 related to water damage in our building at 520 Broad Street, Newark, New Jersey that occurred
in a prior period. We recorded a gain of $0.6 million from this insurance claim in the six months ended January 31, 2014.
Purchases of marketable securities
were $18.4 million and $11.6 million in the six months ended January 31, 2015 and 2014, respectively. Proceeds from maturities
and sales of marketable securities were $12.1 million and $10.1 million in the six months ended January 31, 2015 and 2014, respectively.
Financing Activities
In the six months ended January 31,
2015, we paid cash dividends of $1.67 per share on our Class A common stock and Class B common stock, or $38.9 million in total.
In the six months ended January 31, 2014, we paid cash dividends of $0.25 per share on our Class A common stock and Class B common
stock, or $5.8 million in total. In March 2015, our Board of Directors declared a dividend of $0.18 per share for the second quarter
of fiscal 2015 to holders of our Class A common stock and Class B common stock. The dividend will be paid on or about March 27,
2015 to stockholders of record as of the close of business on March 20, 2015.
We distributed cash of $0.8 million
and $0.6 million in the six months ended January 31, 2015 and 2014, respectively, to the holders of noncontrolling interests in
certain of our subsidiaries.
In August 2013, both Fabrix and a wholly-owned
subsidiary of ours purchased shares of Fabrix for aggregate cash of $1.1 million. The shares were purchased from holders of noncontrolling
interests in Fabrix representing 2.8% of the equity in Fabrix.
We received proceeds from the exercise
of our stock options of $2.9 million and $0.5 million in the six months ended January 31, 2015 and 2014, respectively.
Our subsidiary, IDT Telecom, Inc.,
entered into a credit agreement, dated July 12, 2012, with TD Bank, N.A. for a line of credit facility for up to a maximum
principal amount of $25.0 million. IDT Telecom may use the proceeds to finance working capital requirements, acquisitions and
for other general corporate purposes. The line of credit facility is secured by primarily all of IDT Telecom’s assets. The
principal outstanding bears interest per annum, at the option of IDT Telecom, at either (a) the U.S. Prime Rate less 125
basis points, or (b) the LIBOR rate adjusted by the Regulation D maximum reserve requirement plus 150 basis points. Interest
is payable monthly and all outstanding principal and any accrued and unpaid interest is due on the maturity date of January 31,
2017. In the six months ended January 31, 2015 and 2014, IDT Telecom borrowed nil and $30.0 million, respectively, and IDT Telecom
repaid $13.0 million and $36.1 million, respectively. We intend to continue to borrow under the facility from time to time. IDT
Telecom pays a quarterly unused commitment fee of 0.375% per annum on the average daily balance of the unused portion of
the $25.0 million commitment. IDT Telecom is required to comply with various affirmative and negative covenants as well as maintain
certain financial targets and ratios during the term of the line of credit, including IDT Telecom may not pay any dividend on
its capital stock and IDT Telecom’s aggregate loans and advances to affiliates or subsidiaries may not exceed $90.0 million.
At January 31, 2015, there were no amounts borrowed or utilized for letters of credit under the line of credit, IDT Telecom was
in compliance with all of the covenants, and IDT Telecom’s aggregate loans and advances to affiliates and subsidiaries was
$88.0 million.
Repayments of other borrowings were
$0.1 million in both the six months ended January 31, 2015 and 2014.
In the six months ended January 31,
2015 and 2014, we paid $0.3 million and $1.0 million, respectively, to repurchase 16,330 and 31,182 shares of Class B common stock,
respectively, that were tendered by employees of ours to satisfy the employees’ tax withholding obligations in connection
with the lapsing of restrictions on awards of restricted stock. Such shares are repurchased by us based on their fair market value
on the trading day immediately prior to the vesting date.
We have a stock repurchase program
that authorized the repurchase of up to an aggregate of 8.3 million shares of our Class B common stock. In the six months ended
January 31, 2015, we repurchased 29,675 shares of Class B common stock for an aggregate purchase price of $0.4 million. There were
no repurchases under the program in the six months ended January 31, 2014. As of January 31, 2015, 5.0 million shares remained
available for repurchase under the stock repurchase program.
Changes in Trade Accounts Receivable and Allowance
for Doubtful Accounts
Gross trade accounts receivable decreased
to $61.9 million at January 31, 2015 from $80.8 million at July 31, 2014 primarily due to a $14.7 million decrease in IDT Telecom’s
gross trade accounts receivable balance and due to the sale of our interest in Fabrix. At July 31, 2014, Fabrix’ gross trade
accounts receivable balance was $4.8 million. The decrease in IDT Telecom’s gross trade accounts receivable balance was primarily
due to collections in the six months ended January 31, 2015 in excess of amounts billed during the period, accounts receivable
written-off and the effect of changes in foreign currency exchange rates.
The allowance for doubtful accounts
as a percentage of gross trade accounts receivable decreased to 9.9% at January 31, 2015 from 14.2% at July 31, 2014 as a result
of accounts receivable write-offs in the six months ended January 31, 2015 that reduced the IDT Telecom allowance for doubtful
accounts and gross trade accounts receivable balances.
Contractual Obligations
and Other Commercial Commitments
The following tables quantify our future
contractual obligations and commercial commitments as of January 31, 2015:
Contractual Obligations
Payments Due by Period (in millions) | |
Total | | |
Less than 1 year | | |
1–3
years | | |
4–5
years | | |
After
5 years | |
Operating leases | |
$ | 10.5 | | |
$ | 4.4 | | |
$ | 4.3 | | |
$ | 1.6 | | |
$ | 0.2 | |
Purchase commitments | |
| 5.5 | | |
| 5.5 | | |
| — | | |
| — | | |
| — | |
Note payable (including interest) | |
| 6.7 | | |
| 6.7 | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total contractual obligations | |
$ | 22.7 | | |
$ | 16.6 | | |
$ | 4.3 | | |
$ | 1.6 | | |
$ | 0.2 | |
Other Commercial Commitments
Payments Due by Period (in millions) | |
Total | | |
Less than 1 year | | |
1–3
years | | |
4–5
years | | |
After
5 years | |
Standby letters of credit (1) | |
$ | 3.3 | | |
$ | 3.3 | | |
$ | — | | |
$ | — | | |
$ | — | |
| (1) | The above table does not include an aggregate of $11.0 million in performance bonds due to the uncertainty of the amount and/or
timing of any such payments. |
Off-Balance Sheet Arrangements
We do not have any “off-balance
sheet arrangements,” as defined in relevant SEC regulations that are reasonably likely to have a current or future effect
on our financial condition, results of operations, liquidity, capital expenditures or capital resources, other than the following.
In connection with our spin-off of
CTM Media Holdings, Inc., or CTM, in September 2009, we and CTM entered into a Tax Separation Agreement, dated as of September
14, 2009, to provide for certain tax matters including the assignment of responsibility for the preparation and filing of tax returns,
the payment of and indemnification for taxes, entitlement to tax refunds and the prosecution and defense of any tax controversies.
Pursuant to this agreement, among other things, we indemnify CTM from all liability for taxes of CTM and its subsidiaries for periods
ending on or before September 14, 2009, and CTM indemnifies us from all liability for taxes of CTM and its subsidiaries accruing
after September 14, 2009.
In connection with our spin-off of
Genie Energy Ltd., or Genie, in October 2011, we and Genie entered into various agreements prior to the spin-off including a Separation
and Distribution Agreement to effect the separation and provide a framework for our relationship with Genie after the spin-off,
and a Tax Separation Agreement, which sets forth the responsibilities of us and Genie with respect to, among other things, liabilities
for federal, state, local and foreign taxes for periods before and including the spin-off, the preparation and filing of tax returns
for such periods and disputes with taxing authorities regarding taxes for such periods. Pursuant to the Separation and Distribution
Agreement, among other things, we indemnify Genie and Genie indemnifies us for losses related to the failure of the other to pay,
perform or otherwise discharge, any of the liabilities and obligations set forth in the agreement. Pursuant to the Tax Separation
Agreement, among other things, we indemnify Genie from all liability for taxes of ours with respect to any taxable period, and
Genie indemnifies us from all liability for taxes of Genie and its subsidiaries with respect to any taxable period, including,
without limitation, the ongoing tax audits related to Genie’s business.
In connection with our spin-off of
Straight Path Communications Inc., or Straight Path, in July 2013, we and Straight Path entered into various agreements prior to
the spin-off including a Separation and Distribution Agreement to effect the separation and provide a framework for our relationship
with Straight Path after the spin-off, and a Tax Separation Agreement, which sets forth the responsibilities of us and Straight
Path with respect to, among other things, liabilities for federal, state, local and foreign taxes for periods before and including
the spin-off, the preparation and filing of tax returns for such periods and disputes with taxing authorities regarding taxes for
such periods. Pursuant to the Separation and Distribution Agreement, we indemnify Straight Path and Straight Path indemnifies us
for losses related to the failure of the other to pay, perform or otherwise discharge, any of the liabilities and obligations set
forth in the agreement. Pursuant to the Tax Separation Agreement, we indemnify Straight Path from all liability for taxes of Straight
Path or any of its subsidiaries or relating to the Straight Path business with respect to taxable periods ending on or before the
spin-off, from all liability for taxes of ours, other than Straight Path and its subsidiaries, for any taxable period, and from
all liability for taxes due to the spin-off.
IDT Payment Services and IDT Telecom
have performance bonds issued through third parties for the benefit of various states in order to comply with the states’
financial requirements for money remittance licenses and telecommunications resellers, respectively. At January 31, 2015, we had
aggregate performance bonds of $11.0 million outstanding.
Item 3. Quantitative and Qualitative Disclosures
about Market Risks
Foreign Currency Risk
Revenues from our international operations
were 30% and 31% of our consolidated revenues for the six months ended January 31, 2015 and 2014, respectively. A significant portion
of these revenues is in currencies other than the U.S. Dollar. Our foreign currency exchange risk is somewhat mitigated by our
ability to offset a portion of these non U.S. Dollar-denominated revenues with operating expenses that are paid in the same
currencies. While the impact from fluctuations in foreign exchange rates affects our revenue and expenses denominated in foreign
currencies, the net amount of our exposure to foreign currency exchange rate changes at the end of each reporting period is generally
not material.
Investment Risk
In addition to, but separate from our
primary business, we hold a portion of our assets in marketable securities and hedge funds for strategic and speculative purposes.
As of January 31, 2015, the carrying value of our marketable securities and investments in hedge funds was $19.0 million and $10.9
million, respectively. We liquidated most of our investment in hedge funds in recent years. Much of the remaining balances in these
funds are subject to time restrictions. We may consider liquidating such remaining balances when their restrictions lapse. Investments
in marketable securities and hedge funds carry a degree of risk, and depend to a great extent on correct assessments of the future
course of price movements of securities and other instruments. There can be no assurance that our investment managers will be able
to accurately predict these price movements. The securities markets have in recent years been characterized by great volatility
and unpredictability. Accordingly, the value of our investments may go down as well as up and we may not receive the amounts originally
invested upon redemption.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls
and Procedures. Our Chief Executive Officer and Principal Financial Officer have evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of
the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and
Principal Financial Officer have concluded that our disclosure controls and procedures were effective as of January 31, 2015.
Changes in Internal Control over
Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended
January 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Legal proceedings in which we are involved
are more fully described in Note 11 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly
Report on Form 10-Q.
Item 1A. Risk Factors
There are no material changes from
the risk factors previously disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the year ended July 31, 2014.
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds
The following table provides information
with respect to purchases by us of our shares during the second quarter of fiscal 2015:
| |
Total Number of Shares Purchased | | |
Average Price per Share | | |
Total Number of Shares Purchased as part of Publicly Announced Plans or Programs | | |
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) | |
November 1-30, 2014 (2) | |
| 3,105 | | |
$ | 17.12 | | |
| — | | |
| 5,035,117 | |
December 1-31, 2014 | |
| — | | |
| — | | |
| — | | |
| 5,035,117 | |
January 1–31, 2015 (2) | |
| 4,588 | | |
$ | 19.94 | | |
| — | | |
| 5,035,117 | |
| |
| | | |
| | | |
| | | |
| | |
Total | |
| 7,693 | | |
$ | 18.80 | | |
| — | | |
| | |
(1) | Under our existing stock repurchase program, approved by our Board of Directors on June 13, 2006, we were authorized to
repurchase up to an aggregate of 8.3 million shares of our Class B common stock and, until April 2011, our common stock, without
regard to class. On December 17, 2008, our Board of Directors (i) approved a one-for-three reverse stock split of all
classes of our common stock which was effective on February 24, 2009, and (ii) amended the stock repurchase program to
increase the aggregate number of shares of our Class B common stock and common stock, without regard to class, that we are authorized
to repurchase from the 3.3 million shares that remained available for repurchase to 8.3 million shares. |
| (2)
| Consists of shares of Class B common stock that were tendered by employees of ours to satisfy the employees’ tax withholding
obligations in connection with the lapsing of restrictions on awards of restricted stock. Such shares were repurchased by us based
on their fair market value on the trading day immediately prior to the vesting date and the proceeds utilized to pay the taxes
due upon such vesting event. |
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not
applicable
Item 5. Other Information
None
Item 6. Exhibits
Exhibit
Number
|
|
Description
|
|
|
|
10.01 (1) |
|
Employment Agreement, dated January 12, 2015, between IDT Telecom and Bill Pereira. |
|
|
|
31.1* |
|
Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2* |
|
Certification of Principal Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1* |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2* |
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS* |
|
XBRL Instance Document |
|
|
|
101.SCH* |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL* |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF* |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB* |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE* |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
| * | Filed or furnished herewith. |
| (1) | Incorporated by reference to Form 8-K, filed January 14, 2015. |
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
IDT
Corporation
|
|
|
|
March
12, 2015 |
By: |
/s/ Shmuel
Jonas |
|
|
Shmuel
Jonas
Chief
Executive Officer |
|
|
|
March
12, 2015 |
By: |
/s/ Marcelo
Fischer |
|
|
Marcelo
Fischer
Senior
Vice President of Finance
(Principal
Financial Officer) |
31
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Shmuel Jonas, certify that:
1. I have reviewed this Quarterly Report on
Form 10-Q of IDT Corporation;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this Report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any
change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies
and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not
material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 12, 2015
|
/s/ Shmuel
Jonas |
|
Shmuel Jonas
Chief Executive Officer
|
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Marcelo Fischer, certify that:
1. I have reviewed this Quarterly Report on
Form 10-Q of IDT Corporation;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this Report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any
change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies
and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not
material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 12, 2015
|
/s/ Marcelo
Fischer |
|
Marcelo Fischer
Senior Vice President of Finance
(Principal Financial Officer) |
EXHIBIT 32.1
Certification Pursuant to
18 U.S.C. Section 1350
(as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act Of 2002)
In connection with the Quarterly Report of
IDT Corporation (the “Company”) on Form 10-Q for the quarter ended January 31, 2015 as filed with the Securities and
Exchange Commission (the “Report”), I, Shmuel Jonas, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in
the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 12, 2015
|
/s/ Shmuel
Jonas |
|
Shmuel Jonas
Chief Executive Officer |
A signed original of this written statement
required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears
in typed form within the electronic version of this written statement required by Section 906, has been provided to IDT Corporation
and will be retained by IDT Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
Certification Pursuant to
18 U.S.C. Section 1350
(as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act Of 2002)
In connection with the Quarterly Report of
IDT Corporation (the “Company”) on Form 10-Q for the quarter ended January 31, 2015 as filed with the Securities and
Exchange Commission (the “Report”), I, Marcelo Fischer, Senior Vice President of Finance of the Company, certify, pursuant
to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in
the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 12, 2015
|
/s/ Marcelo
Fischer |
|
Marcelo Fischer
Senior Vice President of Finance
(Principal Financial Officer) |
A signed original of this written statement
required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears
in typed form within the electronic version of this written statement required by Section 906, has been provided to IDT Corporation
and will be retained by IDT Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
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