IDT CORP

Note 1—Description of Business and Summary of Significant Accounting Policies

Description of Business

IDT Corporation (the “Company”) is a provider of point-of-sale (“POS”) terminal-based solutions, international money remittances and other financial technology, or fintech, offerings, cloud communications, and traditional communications services. The Company hasfour reportable business segments, National Retail Solutions (“NRS”), Fintech, net2phone (which comprises our cloud communications offerings), and Traditional Communications.

As of July 31, 2024, the Company owned 94.0% of the outstanding shares of its subsidiary, net2phone 2.0, Inc. (“net2phone 2.0”), which owns and operates the net2phone segment, and 81.5% of the outstanding shares of NRS, and, on a fully diluted basis assuming all the vesting criteria related to various rights granted have been met, the Company would own 90.0% of net2phone 2.0 and 79.3% of NRS.

Basis of Consolidation

The method of accounting applied to long-term investments, whether consolidated, equity or cost, involves an evaluation of the significant terms of each investment that explicitly grant or suggest evidence of control or influence over the operations of the entity in which the Company owns an interest and includes the identification of any variable interests in which the Company is the primary beneficiary. The consolidated financial statements include the Company’s controlled subsidiaries and the variable interest entity in which the Company is the primary beneficiary (see Note 13). All significant intercompany accounts and transactions between the consolidated entities are eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

Reclassifications

From and after August 1, 2023, the Company includes depreciation and amortization in “Direct cost of revenues” and “Selling, general and administrative” expense and is reporting gross profit in accordance with U.S. GAAP in the consolidated statements of income. Prior to August 1, 2023, depreciation and amortization was a separate caption in the consolidated statements of income.

From and after February 1, 2024, the Company reclassified most of its technology and development expenses from “Selling, general and administrative” expense to a new “Technology and development” expense caption in the consolidated statements of income and reclassified an amount that was immaterial in all periods to “Direct cost of revenues.” “Technology and development” expense consists primarily of personnel-related expenses for employees involved in the research, design, development, and maintenance of both new and existing technology products and services, including salaries, benefits, and stock-based compensation. “Technology and development” expense also includes costs for software licenses, subscription services, and other companywide technology tools dedicated for use by the Company’s technology and development teams. The costs of third-party contractors that support the Company’s technology and development are also included. “Technology and development” expense also includes the costs of product and engineering teams used to support the development of both internal infrastructure and internal-use software, to the extent such costs do not qualify for capitalization. The expenses reclassified to “Direct cost of revenues” are the costs of cloud computing arrangements hosted by a vendor in the production environment incurred by the net2phone segment and NRS, and net2phone’s colocation costs for data centers where net2phone is not fully operational in the cloud. Finally, depreciation and amortization of capitalized internal use software costs was reclassified from “Selling, general and administrative” expense to “Technology and development” expense.

The following table shows the amounts that were reclassified in fiscal 2023 and fiscal 2022 to conform to the current year’s presentation:

Accounting for Investments

Investments in businesses that the Company does not control, but in which the Company has the ability to exercise significant influence over operating and financial matters, are accounted for using the equity method. Investments in which the Company does not have the ability to exercise significant influence over operating and financial matters are accounted for using the cost method. Investments in hedge funds are accounted for using the equity method unless the Company’s interest is so minor that it has virtually no influence over operating and financial policies, in which case these investments are accounted for using the cost method. The Company periodically evaluates its equity and cost method investments for impairment due to declines considered to be other than temporary. If the Company determines that a decline in fair value is other than temporary, then a charge to earnings is recorded in “Other expense, net” in the accompanying consolidated statements of income, and a new basis in the investment is established.

Revenue Recognition

The Company recognizes revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services, in accordance with a five-step process as follows: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the Company satisfies a performance obligation.

Direct Cost of Revenues

Direct cost of revenues consists primarily of termination and origination costs, toll-free costs, and network costs—including customer/carrier interconnect charges and fiber circuit charges. These costs include an estimate of charges for which invoices have not yet been received, and estimated amounts for pending disputes with other carriers. Direct cost of revenues also includes the cost of airtime top-up minutes, the cost of NRS’ POS terminals sold, the costs of cloud computing arrangements hosted by a vendor in the production environment incurred by the net2phone segment and NRS, net2phone’s colocation costs for data centers where net2phone is not fully operational in the cloud, net2phone’s cost of equipment sold, and commissions paid to disbursement agents, sales agents, and retailers for BOSS Money’s originations and distributions.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

Debt Securities

The Company’s investments in debt securities are classified as “available-for-sale.” Available-for-sale debt securities are required to be carried at their fair value, with unrealized gains that are considered temporary in nature recorded in “Accumulated other comprehensive loss” in the accompanying consolidated balance sheets. On August 1, 2023, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13,Financial Instruments—Credit Losses (Topic 326),Measurement of Credit Losses on Financial Instruments. For available-for-sale debt securities with unrealized losses, ASU 2016-13 replaced the concept of “other-than-temporary” impairment with a determination whether any impairment is a result of a credit loss or other factors. The portion of the unrealized loss that is the result of a credit loss is recognized as an allowance and a corresponding expense recorded in “Other expense, net” in the consolidated statement of income. Unrealized loss that is not the result of a credit loss is recorded in “Accumulated other comprehensive loss” in the consolidated balance sheets. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements, and it was not necessary to record a cumulative-effect adjustment to retained earnings as of August 1, 2023.

The Company uses the specific identification method in computing the gross realized gains and gross realized losses on the sales of debt securities.

Equity Investments

Investments in equity securities (except those accounted for under the equity method or that result in consolidation) are measured at fair value, with changes in fair value recognized in net income. For investments in equity securities without a readily determinable fair value, the Company elects the measurement alternative and measures these investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. At each reporting date, the Company reassesses whether the investment still qualifies for this measurement alternative. Further, at each reporting date, the Company performs a qualitative assessment to evaluate whether the investment is impaired. If the qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than its carrying value, the carrying amount of the investment will be reduced and the resulting loss recognized in “Other expense, net” in the accompanying consolidated statements of income in the period the impairment is identified.

On August 1, 2024, the Company adopted ASU No. 2022-03,Fair Value Measurement (Topic 820),Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, that clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU also requires specific disclosures related to equity securities that are subject to contractual sales restrictions. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.

Settlement Assets and Settlement Liabilities

Settlement assets represent funds to be received for unsettled international money remittance and related value/payment transfer services. The receivables are due from financial institutions and agents for payment instruments sold and amounts advanced by the Company to certain agents for operational and local regulatory purposes. These receivables are outstanding from the day of the sale of the payment instrument until the financial institution or agent remits the funds to the Company. The Company provides an allowance for the portion of the receivable estimated to become uncollectible based on its history of collection experience, known collection issues, consumer credit card chargebacks and insufficient funds, and other matters the Company identifies in its routine collection monitoring.

Settlement liabilities represent obligations relating to amounts payable under international money remittance and related value/payment transfer services. These obligations are recognized by the Company at the time the underlying transaction occurs. The Company records corresponding settlement assets for the funds to be received.

Disbursement Prefunding

The Company maintains relationships with disbursement partners in various countries for its BOSS Money and IDT Digital Payments services. The Company maintains prefunding balances with these disbursement partners, so they can satisfy the Company’s customer liabilities. The Company does not earn interest on these balances. The balances are not compensating balances and are not legally restricted.

Inventory

Inventory consists of NRS’ POS terminals that it sells to retailers. Inventory is measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

Property, Plant, and Equipment and Intangible Assets

Equipment, computer software, and furniture and fixtures are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives, which are as follows: equipment—5 and 7 years; computer software—3 years; and furniture and fixtures—5 years. Leasehold improvements are recorded at cost and are depreciated on a straight-line basis over the term of their lease or their estimated useful lives, whichever is shorter.

Non-compete agreements, customer relationships, and tradenames are amortized over their estimated useful lives (see Notes 6 and 12).

The Company tests the recoverability of its property, plant, and equipment and intangible assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such asset. If the projected undiscounted future cash flows are less than the carrying value of the asset, the Company will record an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the asset. The Company generally measures fair value by considering sale prices for similar assets or by discounting estimated future cash flows from such asset using an appropriate discount rate. Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record impairments in future periods and such impairments could be material.

Goodwill

Goodwill is the excess of the consideration paid for a business over the fair value of the identifiable net assets acquired. Goodwill and other indefinite lived intangible assets are not amortized. Instead, these assets are reviewed annually (or more frequently under various conditions) for impairment. The Company has the option to perform a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test. However, the Company may elect to perform the quantitative goodwill impairment test even if no indications of a potential impairment exist.

When performing its quantitative annual, or an interim (when conditions warrant), goodwill impairment test the Company compares the fair value of its reporting units with their carrying amounts. The Company would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. Additionally, the Company considers income tax effects from any tax-deductible goodwill on the carrying amount of its reporting unit when measuring the goodwill impairment loss, if applicable. The fair value of the reporting units is estimated using discounted cash flow methodologies, as well as considering third party market value indicators. The Company’s use of a discounted cash flow methodology includes estimates of future revenue based upon budgets and projections. The Company also develops estimates for future levels of gross and operating profits and projected capital expenditures. The Company’s methodology also includes the use of estimated discount rates based upon industry and competitor analysis as well as other factors. Calculating the fair value of the reporting units requires significant estimates and assumptions by management. Should the estimates and assumptions regarding the fair value of the reporting units prove to be incorrect, the Company may be required to record impairments to its goodwill in future periods and such impairments could be material.

Advertising Expense

Cost of advertising is charged to selling, general and administrative expense in the period in which it is incurred. In fiscal 2024, fiscal 2023, and fiscal 2022, advertising expense was $19.0 million, $17.9 million, and $17.0 million, respectively.

Capitalized Internal Use Software Costs

The Company capitalizes the cost of internal-use software that has a useful life in excess of one year. These costs consist of payments made to third parties and the salaries of employees working on such software development. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are charged to expense in the period in which they are incurred. Capitalized internal use software costs are amortized on a straight-line basis over their estimated useful lives. Amortization expense related to such capitalized software in fiscal 2024, fiscal 2023, and fiscal 2022 was $12.8 million, $13.2 million, and $12.2 million, respectively. Unamortized capitalized internal use software costs at July 31, 2024 and 2023 were $18.6 million and $18.8 million, respectively.

Repairs and Maintenance

The Company charges the cost of repairs and maintenance, including the cost of replacing minor items not constituting substantial betterment, to selling, general and administrative expense or technology and development expense as these costs are incurred.

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries denominated in foreign currencies are translated to U.S. Dollars at end-of-period rates of exchange, and their monthly results of operations are translated to U.S. Dollars at the average rates of exchange for that month. Gains or losses resulting from such foreign currency translations are recorded in “Accumulated other comprehensive loss” in the accompanying consolidated balance sheets. Foreign currency transaction gains and losses are reported in “Other expense, net” in the accompanying consolidated statements of income.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in its assessment of a valuation allowance. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.

The Company uses a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company presumes that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. Tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of tax benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset, or an increase in a deferred tax liability.

The Company classifies interest and penalties on income taxes as a component of income tax expense.

Contingencies

The Company accrues for loss contingencies when both (a) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements and (b) the amount of loss can reasonably be estimated. When the Company accrues for loss contingencies and the reasonable estimate of the loss is within a range, the Company records its best estimate within the range. When no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount in the range. The Company discloses an estimated possible loss or a range of loss when it is at least reasonably possible that a loss may have been incurred.

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 determined 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:

There wereno shares excluded from the calculation of diluted earnings per share in fiscal 2024, fiscal 2023, or fiscal 2022.

Stock-Based Compensation

The Company recognizes compensation expense for its grants of stock-based awards based on the estimated fair value on the grant date. Compensation cost for awards is recognized using the straight-line method over the requisite service period, which is usually the vesting period. Stock-based compensation is included in selling, general and administrative expense and technology and development expense.

Vulnerability Due to Certain Concentrations

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, restricted cash and cash equivalents, debt securities, equity investments, and trade accounts receivable. The Company holds cash and cash equivalents at several major financial institutions, which often exceed FDIC insurance limits. Historically, the Company has not experienced any losses due to such concentration of credit risk. The Company’s temporary cash investments policy is to limit the dollar amount of investments with any one financial institution and monitor the credit ratings of those institutions. While the Company may be exposed to credit losses due to the nonperformance of the holders of its deposits, the Company does not expect the settlement of these transactions to have a material effect on its results of operations, cash flows, or financial condition.

The concentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers in various geographic regions and industry segments comprising the Company’s customer base. No single customer accounted for more than 10% of consolidated revenues in fiscal 2024, fiscal 2023 or fiscal 2022. However, the Company’s five largest customers collectively accounted for 10.3%,10.8%, and 12.5% of its consolidated revenues in fiscal 2024, fiscal 2023, and fiscal 2022, respectively. The Company’s customers with the five largest receivable balances collectively accounted for 22.7% and 16.7% of the consolidated gross trade accounts receivable at July 31, 2024 and 2023, respectively. This concentration of customers increases the Company’s risk associated with nonpayment by those customers. In an effort to reduce such risk, the Company performs ongoing credit evaluations of its significant customers. In addition, the Company attempts to mitigate the credit risk related to specific IDT Global customers by also buying services from the customer, in order to create an opportunity to offset its payables and receivables and reduce its net trade receivable exposure risk. When it is practical to do so, the Company will increase its purchases from IDT Global customers with receivable balances that exceed the Company’s applicable payables in order to maximize the offset and reduce its credit risk.

Allowance for Credit Losses and Allowance for Doubtful Accounts

Effective with the adoption of ASU 2016-13 on August 1, 2023, the Company records an expense based on a forward-looking current expected credit loss model to maintain its allowance for credit losses, which replaced the allowance for doubtful accounts. When determining its allowance for trade accounts receivable, the Company considers the probability of recoverability of accounts receivable based on experience, taking into account current collection trends and general economic factors, including bankruptcy rates. The Company also considers future economic trends to estimate expected credit losses over the lifetime of the asset. Credit risks are assessed based on historical write-offs, net of recoveries, as well as an analysis of the aged accounts receivable balances with allowances generally increasing as the receivable ages. Accounts receivable may be fully reserved for when specific collection issues are known to exist, such as pending bankruptcies. Account balances are written off against the allowance when it is determined that the receivable will not be recovered. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements, and it was not necessary to record a cumulative-effect adjustment to retained earnings as of August 1, 2023.

Prior to the adoption of ASU 2016-13, the Company estimated the balance of its allowance for doubtful accounts by analyzing accounts receivable balances by age and applying historical write-off and collection trend rates. The Company’s estimates included separately providing for customer receivables based on specific circumstances and credit conditions, and when it was deemed probable that the balance was uncollectible.

The changes in the allowance and reserves deducted from asset accounts is as follows:

Fair Value Measurements

Fair value of financial and non-financial assets and liabilities is defined as an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used to measure fair value, which prioritizes the inputs to valuation techniques used to measure fair value, is as follows:

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

Leases

The Company determines whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset which the Company has the right to control. The Company records a right-of-use (“ROU”) asset and a lease liability on the balance sheet on the lease commencement date for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The ROU asset and lease liability are recorded based on the present value of the Company’s obligation to make payments over the lease term. The present value of the lease payments is calculated using the incremental borrowing rate based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company recognizes lease cost for its leases on a straight-line basis over the lease term.

Recently Adopted Accounting Standard—Segment Reporting

On August 1, 2024, the Company adopted ASU No. 2023-07,Segment Reporting (Topic 280),*Improvements to Reportable Segment Disclosures,*that is intended to improve the disclosures about reportable segments and add more detailed information about a reportable segment’s expenses. These changes will affect the Company’s segment reporting beginning with its Annual Report for fiscal 2025 and its Quarterly Reports in fiscal 2026 applied retrospectively to all prior periods presented. The amendments in the ASU require public entities to disclose on an annual and interim basis significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, other segment items by reportable segment, the title and position of the CODM, and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. The ASU does not change the definition of a segment, the method for determining segments, the criteria for aggregating operating segments into reportable segments, or the current specifically enumerated segment expenses that are required to be disclosed. The adoption of this ASU did not impact the Company’s results of operations, cash flows, or financial condition.

Recently Issued Accounting Standards Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-09,Income Taxes (Topic 740),Improvements to Income Tax Disclosures, primarily related to the rate reconciliation and income taxes paid disclosures as well as certain other amendments to income tax disclosures. Entities will be required on an annual basis to consistently categorize and provide greater disaggregation of rate reconciliation information and further disaggregate their income taxes paid. The Company will adopt the amendments in this ASU for its fiscal year beginning on August 1, 2025. The amendments in this ASU should be applied on a prospective basis, although retrospective application is permitted. The Company is evaluating the impact that this ASU will have on its consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-08,Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60),Accounting for and Disclosure of Crypto Assets, that changes the accounting for crypto assets from a cost-less-impairment model to fair value, with changes recognized in net income each reporting period. The ASU also requires enhanced disclosures including, among other things, the name, cost basis, fair value, and number of units for each significant holding, and a rollforward of annual activity including additions, dispositions, gains, and losses. The Company will adopt the amendments in this ASU for its fiscal year beginning on August 1, 2025. The ASU requires a cumulative-effect adjustment to the opening balance of retained earnings as of adoption. The Company is evaluating the impact that this ASU will have on its consolidated financial statements.

Note 2—Business Segment Information

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 CODM. The accounting policies of the segments are the same as the accounting policies of the Company as a whole. There are no significant asymmetrical allocations to segments. The Company evaluates the performance of its business segments based primarily on income (loss) from operations.

The NRS segment is an operator of a nationwide POS network providing independent retailers with store management software, electronic payment processing, and other ancillary merchant services. NRS’ POS platform provides marketers with digital out-of-home advertising and transaction data.

The Fintech segment is comprised of: (i) BOSS Money, a provider of international money remittance and related value/payment transfer services; and (ii) other, significantly smaller, financial services businesses, including a variable interest entity that operates money transfer businesses, and IDT Financial Services Limited (“IDT Financial Services”), the Company’s Gibraltar-based bank.

The net2phone segment is comprised of net2phone’s integrated cloud communications and contact center services.

The Traditional Communications segment includes: (i) IDT Digital Payments, which enables customers to transfer airtime and bundles of airtime, messaging, and data to international and domestic mobile accounts; (ii) BOSS Revolution (formerly BOSS Revolution Calling), an international long-distance calling service marketed primarily to immigrant communities in the United States and Canada; and (iii) IDT Global, a wholesale provider of international voice and SMS termination and outsourced traffic management solutions to telecoms worldwide. Traditional Communications also includes other small businesses and offerings including early-stage business initiatives and mature businesses in harvest mode.

Corporate costs mainly include compensation, consulting fees, treasury, tax and accounting services, human resources, corporate purchasing, corporate governance including Board of Directors’ fees, internal and external audit, investor relations, corporate insurance, corporate legal, and other corporate-related general and administrative expenses. Corporate does not generate any revenues, nor does it incur any direct cost of revenues.

Operating results for the business segments of the Company were as follows:

Total assets for the reportable segments are not provided because a significant portion of the Company’s assets service multiple segments and the Company does not track such assets separately by segment.

Geographic Information

Net long-lived assets and total assets held outside of the United States, which are located primarily in Western Europe, were as follows:

Note 3—Revenue Recognition

Contracts with Customers

The Company earns revenue from contracts with customers, primarily through the provision of retail telecommunications and payment offerings as well as wholesale international voice and SMS termination. BOSS Money, NRS, and net2phone are technology-driven, synergistic businesses that leverage the Company’s core assets. BOSS Money’s and NRS’ revenues are primarily recognized at a point in time, and net2phone’s revenue is mainly recognized over time. Traditional Communications’ offerings are mostly minute-based, paid-voice communications services, and revenue is primarily recognized at a point in time. The Company’s most significant revenue streams are from IDT Digital Payments, BOSS Revolution, and IDT Global. IDT Digital Payments and BOSS Revolution are sold direct-to-consumers and through distributors and retailers.

IDT Digital Payments

IDT Digital Payments is sold direct-to-consumer and through distributors and retailers in the same manner as BOSS Revolution (see below). The Company does not terminate the minutes in its IDT Digital Payments transactions. The Company’s performance obligation is to recharge (top-up) the airtime balance of a mobile account on behalf of the Company’s customer. The Company has contracts with various mobile operators or aggregators to provide the IDT Digital Payments service. The Company determined that it is the principal in primarily all its IDT Digital Payments transactions as the Company controls the service to top-up a mobile account on behalf of the Company’s customer. However, for the portion of its IDT Digital Payments business where the Company has no customer service responsibilities, no inventory risk, and does not establish the price, the Company determined that, as the Company is not considered to control the arrangement, it acts as an agent of the mobile operators. The Company records gross revenues based on the amount billed to the customer when it is the principal in the arrangement and records revenue net of the associated costs incurred when it acts as an agent in the arrangement. The transfer of control happens at the point in time that the airtime is recharged, which is when the Company has a right to payment and the customer has accepted the service. Accordingly, the performance obligation is satisfied, and revenue is recognized when the recharge of the mobile account occurs.

BOSS Revolution direct-to-consumer

BOSS Revolution direct-to-consumer is offered on a pay-as-you-go basis or in unlimited plans. The customer prepays for service in both cases, which results in a contract liability (deferred revenue). The contract term for pay-as-you-go plans is minute-to-minute and includes separate performance obligations for the series of material rights to renew the contract. The performance obligation is satisfied immediately after it arises, and the amount of consideration is known when the obligation is satisfied. Since the Company’s satisfaction of its performance obligation and the customer’s use of the service occur simultaneously, the Company recognizes revenue at the point in time when minutes are utilized, since the customer obtained control and the Company has a present right to payment. For unlimited plans, the Company has a stand-ready obligation to provide service over time for an agreed upon term. Unlimited plans include fixed consideration over the term. Plan fees for unlimited plans are generally refundable at the request of the customer up to three days after payment if there was no usage. Since the Company’s satisfaction of its performance obligation and the customer’s use of the service occur over the term of the plan, the Company recognizes revenue over a period of time as the service is rendered. The Company uses an output method as time elapses because it reflects the pattern by which the Company satisfies its performance obligation through the transfer of service to the customer. The fixed upfront consideration is recognized evenly over the service period, which is generally 24 hours, 7 days, or one month.

BOSS Revolution sold through distributors and retailers

BOSS Revolution sold through distributors and retailers is the same service as BOSS Revolution sold direct-to-consumer. The Company sells capacity to international calling minutes to retailers, or to distributors who resell to retailers. The retailer or distributor is the Company’s customer in these transactions. The Company’s sales price to retailers and distributors, net of discounts, is less than the end user rate for BOSS Revolution minutes. The customer or the Company may terminate their agreement at any time upon thirty days written notice without penalty. Retailers may sell BOSS Revolution on a pay-as-you-go basis or in unlimited plans. As described above, for pay-as-you-go, the Company recognizes revenue at the point in time when minutes are utilized, and for unlimited plans, the Company recognizes revenue over a period of time as the service is rendered. Retailers and distributors also receive initial commissions upon sale to end users, and renewal commissions when certain end users subsequently purchase minutes directly from the Company. Initial and renewal commission payments are accounted for as a reduction of the transaction price over time as the end user uses the service.

IDT Global

IDT Global services are offered to both postpaid and prepaid customers. Postpaid customers are billed in arrears and typically consist of credit-worthy companies such as Tier 1 carriers and mobile network operators. Prepaid customers are typically smaller communications companies and independent call aggregators. There is no performance obligation until the transport and termination of international long-distance calls commences. The initial contract durations range from six months to one year, and generally have successive extensions. During the initial term, the contract can only be terminated in certain instances (such as bankruptcy of either party, damage to the other party’s network, fraud, or breach of contract). However, no penalties are applied if the agreement is terminated in the initial term. After the initial term has expired, either party may terminate the agreement with notice of 30 days to 60 days depending on the agreement. The term of the contract is essentially minute-to-minute as there is no penalty for an early termination and no obligation to send traffic.

Each iteration is a separate optional purchase that occurs over the contract duration (that is, minute-by-minute). The satisfaction of the performance obligation is occurring at a point in time (as the minutes are transferred) because the provision of the service and the satisfaction of the performance obligation are essentially occurring simultaneously. Revenue is recognized at the point in time upon delivery of the service.

The Company has not generally entered into contracts that have retroactive pricing features. Additionally, as the performance obligations are considered minute-by-minute obligations in the original contract, any modification of the original contract that leads to a conclusion that there is a new contract would not result in any adjustment related to the original contract’s consideration.

The Company provides discounts to its larger customers based on the expectation of a significant volume of minutes that are consistent with that class of customer in the wholesale carrier market. The discounts do not provide a material right to the customer because the customer receives the same pricing for all usage under the contract.

IDT Global’s contracts may include tiered pricing based on minute volumes. The Company determined that its retroactive tiered pricing should be accounted for as variable consideration because the final transaction price is unknown until the customer completes or fails to complete the specified threshold. Currently, contracts with retroactive tiered pricing are not material. The Company estimates the amount of variable consideration to include in the transaction price only to the extent that it is probable that a subsequent change in the estimate would not result in a significant revenue reversal.

The Company enters into Notification of Reciprocal Transmission (“NORT”) transactions, in which the Company commits to purchase a specific number of wholesale carrier minutes to specific destinations at specified rates, and the counterparty commits to purchase from the Company a specific number of minutes to specific destinations at specified rates. The number of minutes purchased and sold is not necessarily the same. The rates in these reciprocal transactions are generally not at prevailing market rates, and the amounts paid to the counterparty in excess of market rates are reflected as a reduction in revenue received from the customer. In addition, the Company enters into transactions in which it swaps minutes with another carrier. The Company recognizes revenue and the related direct cost of revenue for these reciprocal and swap transactions based on the fair value of the minutes.

IDT Global’s NORT contracts include the promise of minimum guaranteed amounts of traffic. The performance obligation represents a stand ready obligation to provide the specified number of minutes over the contractual term. The initial terms of NORT contracts generally range from one month to six months. Since the Company’s satisfaction of its performance obligation of routing calls to their destination includes a minimum guaranteed amount of traffic, the Company recognizes revenue over a period of time as the service is rendered. The customer simultaneously receives and consumes the benefits provided by the Company’s performance as the Company performs. The Company uses an output method as the usage of minutes occur because it reflects the pattern by which the Company satisfies its performance obligation through the transfer of service to the customer.

National Retail Solutions

NRS earns revenue from (1) the sale of POS terminals to retailers, (2) a monthly recurring charge for its software license, software upgrades, and help desk support (collectively, the “Software services”), (3) fees for advertising on the POS terminals, (4) sales of the data collected by the POS terminals to data aggregators and others, and (5) merchant services’ commissions for the processing of credit and debit card transactions on the POS terminals.

NRS sells its POS terminals to retailers. The terminals include a cash register, a barcode scanner, retailer and customer-facing hi-definition screens, a receipt printer, and a credit card reader. The arrangement with the customer includes the equipment sale including embedded POS software, as well as the Software services. Each hardware component and the Software services is a separate performance obligation because each is a distinct good or service that can be obtained from alternate providers. The transaction price is allocated to each performance obligation based on the relative standalone selling price (“SSP”). The SSP reflects the amount the Company would charge for each performance obligation if it were sold separately in a standalone sale to similar customers in similar circumstances. The SSP for POS terminals is generally estimated using the cost plus expected gross margin approach. Equipment revenue is recognized at the point in time when the customer has physical possession of the POS terminal, which is when the customer can use the POS terminal and embedded software and has the risks and rewards of ownership. Revenue from the Software services is recognized ratably over the term of the contract because satisfaction of the performance obligation and the customer’s use of the service occur evenly over the term.

NRS sells advertising on the POS terminal’s high-definition screens through internal sales agents, third-party brokers, and real-time auctions on exchange platforms known as programmatic advertising. For advertising sold through its agents or a broker, as well as for a portion of its programmatic advertising, NRS is the principal because it is responsible for performing the service by delivering advertisements according to the customer’s requirements. For the portion of its programmatic advertising where NRS does not control the ad space before it is provided to the customer, NRS acts as an agent of the advertising exchange. NRS records gross revenues based on the amount billed to the customer when it is the principal in the arrangement and records revenue net of the associated costs incurred when it acts as an agent in the arrangement. The performance obligation is satisfied, and revenue is recognized during the period of time when the advertisement is broadcast on the POS terminal.

NRS captures targeted, daily data from the POS terminals that it sells to customers. The performance obligation is the provision of a data report, generally one report per POS terminal per week, where each report is a distinct good that is not interrelated with another report. Customers purchase data reports generally for an annual fee per POS terminal. The consideration is variable because it depends on the number of POS terminals selected. The performance obligation is satisfied, and revenue is recognized, at the point in time when the customer receives a data report because the customer obtains control and has the benefit of the data. The amount recognized per report is the same for each report since each report has the same standalone value to the customer.

NRS’ merchant services, called NRS PAY, enable retailers to accept and process payments made by credit cards, debit cards, electronic benefits transfer, and other forms of electronic payment. NRS PAY revenue is a monthly fee plus a percentage of the transaction amount plus a flat rate per transaction. There is no separate charge for the credit card reader provided to the retailers, which remains NRS’ property and must be returned upon termination of NRS PAY. Merchant services are provided as an agent of the payment processor or funding bank, therefore NRS records revenue net of the associated costs incurred. The performance obligation is satisfied, and revenue is recognized when the payment is processed.

The retailers’ use of the credit card reader is a separate performance obligation that meets the definition of a lease. The lease consideration is included in the NRS PAY monthly recurring charge. NRS accounts for the non-lease and lease components as a single performance obligation in accordance with Accounting Standards CodificationRevenue from Contracts with Customers (Topic 606)(“ASC 606”) because the timing and pattern of transfer of both components is the same, and the non-lease component is the predominant component.

net2phone

net2phone earns revenue primarily through the provision of cloud communications services for businesses. The services are priced on a per-seat basis, and its subscription revenue is a monthly fee per seat. Revenue is primarily recognized over the monthly service period. Revenue from the sale of telephone equipment is recognized at a point in time when the equipment is delivered to the customer.

net2phone leases telephone equipment to certain customers, which is a separate performance obligation that meets the definition of a lease. The lease consideration is included in the monthly recurring charge. net2phone accounts for the non-lease and lease components as a single performance obligation in accordance with ASC 606 because the timing and pattern of transfer of both components is the same, and the non-lease component is the predominant component.

BOSS Money

Revenues from international money transfers are primarily from transaction fees charged to the customer based on the amount sent and the send and receive locations. In addition, revenues are earned on the foreign currency exchange based on the difference between purchasing currency at wholesale exchange rates and selling the currency at retail exchange rates. The Company satisfies its international money transfer performance obligations and recognizes revenue at a point in time when the designated recipient receives the funds, as the Company has a right to payment and the customer has use of the service.

Disaggregated Revenues

The following table shows the Company’s revenues disaggregated by business segment and service offered to customers:

The following table shows the Company’s revenues disaggregated by geographic region, which is determined based on selling location:

Remaining Performance Obligations

The following table includes revenue by business segment expected to be recognized in the future from performance obligations that were unsatisfied or partially unsatisfied as of July 31, 2024. The table excludes contracts that had an original expected duration of one year or less.

Accounts Receivable and Contract Balances

The timing of revenue recognition may differ from the time of billing to the Company’s customers. Trade accounts receivable in the Company’s consolidated balance sheets represent unconditional rights to consideration. The Company would record a contract asset when revenue is recognized in advance of its right to bill and receive consideration. The Company has not currently identified any contract assets.

Contract liabilities arise when the Company receives consideration or bills its customers prior to providing the goods or services promised in the contract. The Company’s contract liability balance is primarily payments received for prepaid BOSS Revolution. Contract liabilities are recognized as revenue when services are provided to the customer. The contract liability balances are presented in the Company’s consolidated balance sheets as “Deferred revenue”. The Company’s revenue recognized in fiscal 2024, fiscal 2023, and fiscal 2022 from amounts included in the contract liability balance at the beginning of the period was $22.1 million, $23.5 million, and $28.2 million, respectively.

The Company estimates its expected breakage revenue by revenue stream recorded each month, based on inputs and assumptions about usage of the deferred revenue balances. The Company used its historical deferred revenue usage data by revenue stream to calculate the percentage of deferred revenue by month that will become breakage. The historical data indicated that customers utilized a very high percentage of minutes purchased in the first three months. The Company periodically reviews its estimates based on updated data and adjusts the monthly estimates accordingly.

Deferred Customer Contract Acquisition and Fulfillment Costs

The Company recognizes as an asset its incremental costs of obtaining a contract with a customer that it expects to recover. The Company’s incremental costs of obtaining a contract with a customer are sales commissions paid to employees and third parties on sales to end users. If the amortization period were one year or less for the asset that would be recognized from deferring these costs, the Company applies the practical expedient whereby the Company charges these costs to expense when incurred.

The Company’s costs to fulfill its contracts do not meet the criteria to be recognized as an asset, therefore these costs are charged to expense as incurred.

The Company’s deferred customer contract acquisition costs were as follows:

In fiscal 2024, fiscal 2023, and fiscal 2022, the Company’s amortization of deferred customer contract acquisition costs was $5.8 million, $4.9 million, and $4.4 million, respectively.

Note 4—Leases

The Company’s leases primarily consist of operating leases for office space. These leases have remaining terms from less thanone year tosix years. Certain of these leases include renewal options that may be exercised and/or options to terminate the lease. The Company has concluded that it is not reasonably certain that it would exercise any of these options.

The Company leases office and parking space in a building and parking garage located at 520 Broad St, Newark, New Jersey that was previously owned by Rafael Holdings, Inc. (“Rafael”), a related party. On August 22, 2022, Rafael sold the building and parking garage to an unrelated third party. The Company’s lease in that property continues with the new owner. The Company leases office space in Israel from Rafael. Howard S. Jonas, the Chairman of the Company and the Chairman of the Company’s Board of Directors is also the Chairman of the Board of Directors and Executive Chairman of Rafael. The Newark lease expires in April 2025 and the Israel lease expires in July 2025. In fiscal 2024, fiscal 2023, and fiscal 2022, the Company incurred lease costs in connection with the Rafael leases of $0.1 million, $0.3 million (which excludes Newark lease costs after August 22, 2022), and $2.0 million, respectively. Lease costs incurred in connection with the Rafael leases are included in operating lease cost in the table below.

Supplemental disclosures related to the Company’s operating leases were as follows:

In fiscal 2024, fiscal 2023, and fiscal 2022, the Company obtained right-of-use assets of $0.9 million, $1.8 million, and $2.2 million, respectively, in exchange for new operating lease liabilities. In addition, in fiscal 2024, the Company modified its lease at 520 Broad St, Newark, New Jersey and reduced the related right-of-use asset by $0.8 million and the related operating lease liability by $0.9 million.

The Company’s aggregate operating lease liability was as follows:

Future minimum maturities of operating lease liabilities were as follows:

Note 5—Cash, Cash Equivalents, and Restricted Cash and Cash Equivalents

The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported in the consolidated balance sheets that equals the total of the same amounts reported in the consolidated statements of cash flows:

At July 31, 2024 and 2023, restricted cash and cash equivalents included $83.3 million and $87.3 million, respectively, in restricted cash and cash equivalents for customer deposits held by IDT Financial Services. Certain of the electronic money financial services regulations in Gibraltar require IDT Financial Services to safeguard cash held for customer deposits, segregate cash held for customer deposits from any other cash that IDT Financial Services holds and utilize the cash only for the intended payment transaction.

Company Restricted Cash and Cash Equivalents

The Company treats unrestricted cash and cash equivalents held by IDT Payment Services, Inc. and IDT Payment Services of New York, LLC, which provide the Company’s international money transfer services in the United States, as substantially restricted and unavailable for other purposes. At July 31, 2024 and 2023, “Cash and cash equivalents” in the Company’s consolidated balance sheets included an aggregate of $55.9 million and $20.6 million, respectively, held by IDT Payment Services, Inc. and IDT Payment Services of New York, LLC, that was unavailable for other purposes.

Note 6—Acquisitions

Integra CCS

On March 3, 2022, net2phone 2.0 purchased all of the outstanding shares of Onwaba S.R.L. and Gem S.R.L. for an aggregate purchase price of up to $15.0 million. Onwaba S.R.L. and Gem S.R.L. are located in Uruguay and use the trade name Integra CCS. The operating results of the acquired companies from the date of acquisition, which were not significant, are included in the Company’s consolidated financial statements.

The purchase price consisted of: (a) cash of $7.2 million that was paid at closing, (b)27,765 shares of the Company’s Class B common stock with a value of $1.0 million that were issued at closing, (c) cash of $3.3 million, half of which was paid in fiscal 2023 and the remainder was paid in fiscal 2024, and (d)contingent consideration of up to $3.5 million based on annual cumulative incremental recurring seat revenue of the net2phone segment over a four-year period, payable in cash and/or equity at net2phone 2.0’s discretion.

The acquisition date fair value of the consideration consisted of the following:

The acquisition-date fair value of the contingent consideration was estimated using discounted cash flow models. This fair value measurement was based on significant inputs not observable in the market and therefore represented a Level 3 measurement. There was no change in the estimated fair value of the contingent consideration in the period from the acquisition date to July 31, 2023. In fiscal 2024, the Company paid an aggregate of $0.5 million of the contingent consideration.

The impact of the acquisition’s purchase price allocations on the Company’s consolidated balance sheet was as follows:

The goodwill was assigned to the net2phone segment and was attributable primarily to the assembled workforce and the expected synergies from the business combination. The goodwill is not expected to be deductible for income tax purposes.

Leaf Global Fintech Corporation

On March 1, 2022, the Company’s subsidiary, IDT International Telecom, Inc. (“IDTIT”), purchased all of the outstanding shares of Leaf Global Fintech Corporation (“Leaf”), a provider of digital wallet services in emerging markets, for up to $6.05 million. Leaf’s operating results from the date of acquisition, which were not significant, are included in the Company’s consolidated financial statements.

The purchase price was comprised of (a) $0.5 million paid in cash at the closing, (b) a working capital adjustment for a maximum of $50,000, and (c)contingent consideration of up to $5.5 million based on annual gross profit over a five-year period.

The acquisition date fair value of the consideration consisted of the following:

The acquisition-date fair value of the contingent consideration was estimated using discounted cash flow models. This fair value measurement was based on significant inputs not observable in the market and therefore represented a Level 3 measurement. There was no change in the estimated fair value of the contingent consideration in the period from the acquisition date to July 31, 2022. In fiscal 2024 and fiscal 2023, the Company determined that the requirements for the contingent consideration payments would likely not be met. The Company recorded gains of $1.8 million and $1.6 million in fiscal 2024 and fiscal 2023, respectively, on the write-off of the contingent consideration payment obligations, which was included in “Other operating expense, net” in the accompanying consolidated statements of income.

The impact of the acquisition’s purchase price allocations on the Company’s consolidated balance sheet was as follows:

The goodwill was assigned to the Fintech segment and was attributable primarily to the assembled workforce and the expected synergies from the business combination. The goodwill is not expected to be deductible for income tax purposes.

Note 7—Debt Securities

The following is a summary of available-for-sale debt securities:

The gross unrealized losses in the table above are recorded in “Accumulated other comprehensive loss” in the consolidated balance sheets. As of July 31, 2024, the Company determined that the unrealized losses were due to changes in interest rates or market liquidity and were not due to credit losses. In addition, as of July 31, 2024 and 2023, the Company did not intend to sell any of the securities with unrealized losses, and it is not more likely than not that the Company will be required to sell any of these securities before recovery of the unrealized losses, which may be at maturity.

Proceeds from maturities and sales of debt securities and redemptions of equity investments were $50.1 million, $49.2 million, and $21.2 million in fiscal 2024, fiscal 2023, and fiscal 2022, respectively. There were no realized gains or realized losses from sales of debt securities in fiscal 2024, fiscal 2023, or fiscal 2022.

The contractual maturities of the Company’s available-for-sale debt securities at July 31, 2024 were as follows:

The following table includes the fair value of the Company’s available-for-sale debt securities that were in an unrealized loss position:

The following available-for-sale debt securities included in the table above were in a continuous unrealized loss position for 12 months or longer:

Note 8—Equity Investments

Equity investments consist of the following:

Howard S. Jonas is the Vice-Chairman of the Board of Directors of Zedge.

In June 2016, upon the acquisition of Visa Europe Limited by Visa, Inc. (“Visa”), IDT Financial Services received 1,830 shares of Visa Series C Preferred among other consideration. In July 2024 and July 2022, in connection with Visa’s mandatory release assessments, the Company received 33 shares and 58 shares, respectively, of Visa’s Series A Preferred. In August 2024, the 33 shares of Visa Series A Preferred were converted into 3,300 shares of Visa Class A common stock, which the Company sold for $0.9 million. In August 2022, the 58 shares of Visa Series A Preferred were converted into 5,800 shares of Visa Class A common stock, which the Company sold for $1.3 million.

The changes in the carrying value of the Company’s equity investments without readily determinable fair values for which the Company elected the measurement alternative was as follows:

The Company adjusted the carrying value of the shares of Visa Series C Preferred it held based on the fair value of Visa Class A common stock, including a discount for lack of current marketability, which is classified as “Adjustment for observable transactions involving a similar investment from the same issuer” in the table above. The Certificate of Designation with respect to the shares of Visa Series C Preferred restricts the transferability of the shares, there is no public market for the shares, and none is expected to develop. The shares become fully convertible into shares of Visa Class A common stock in June 2028. In addition, in connection with the acquisition of Regal Bancorp by SR Bancorp, the Company received cash of $0.2 million in fiscal 2024 in exchange for its shares of Regal Bancorp common stock.

Unrealized gains and losses for all equity investments measured at fair value included the following:

The unrealized losses and gains for all equity investments measured at fair value in the table above included the following:

Equity Method Investment

The Company has an investment in shares of convertible preferred stock of a communications company (the equity method investee, or “EMI”). As of July 31, 2024 and 2023, the Company’s ownership was 33.4% and 33.3%, respectively, of the EMI’s outstanding shares on an as converted basis. The Company accounts for this investment using the equity method since the Company can exercise significant influence over the operating and financial policies of the EMI but does not have a controlling interest.

The Company determined that on the dates of the acquisitions of the EMI’s shares, there were differences between its investment in the EMI and its proportional interest in the equity of the EMI of an aggregate of $8.2 million, which represented the share of the EMI’s customer list on the dates of the acquisitions attributed to the Company’s interest in the EMI. These basis differences are being amortized over the 6-year estimated life of the customer list. In the accompanying consolidated statements of income, amortization of equity method basis difference is included in the equity in the net loss of investee, which is recorded in “Other expense, net” (see Note 18).

As of April 6, 2023, the Company was the holder of secured promissory notes made by the EMI in exchange for loans of an aggregate of $4.0 million including accrued interest. The notes provided for interest on the principal amount at 15% per annum payable monthly. The notes were due and payable in February 2023 and April 2023. On April 6, 2023, in accordance with an Agreement and Plan of Merger dated as of April 5, 2023, the EMI merged with and into its subsidiary, with the subsidiary being the surviving corporation. Effective with the merger, the principal and accrued interest of the EMI’s secured promissory notes was converted into shares of the EMI’s convertible preferred stock.

The following table summarizes the change in the balance of the Company’s equity method investment:

As of August 22, 2024, the EMI’s shareholders including the Company agreed to purchase additional shares of the EMI’s convertible preferred stock. The Company subscribed to purchase additional shares through January 2025 for an aggregate of $0.9 million. In August 2024, the Company paid $0.4 million to purchase additional shares.

Note 9—Fair Value Measurements

The following table presents the balance of assets and liabilities measured at fair value on a recurring basis:

At July 31, 2024 and 2023, the Company had $2.9 million and $3.0 million, respectively, in investments in hedge funds, which were included in noncurrent “Equity investments” in the accompanying consolidated balance sheets. The Company’s investments in hedge funds were accounted for using the equity method, therefore they were not measured at fair value.

The following tables summarize the change in the balance of the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

The following tables summarize the change in the balance of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

In fiscal 2024 and fiscal 2023, the Company paid an aggregate of $2.1 million and $2.5 million, respectively, for contingent consideration related to prior acquisitions, which included 2,679 and 3,051 shares, respectively, of the Company’s Class B common stock with an issue date value of $0.1 million in both fiscal 2024 and fiscal 2023. In addition, the Company recorded gains of $1.8 million, $1.6 million, and $0.3 million in fiscal 2024, fiscal 2023, and fiscal 2022, respectively, on the write-off of contingent consideration payment obligations. Also, in fiscal 2023, the Company increased the estimated fair value of acquisition-related contingent consideration by $0.2 million. These write-offs of contingent consideration net of the increase in the contingent consideration were included in “Other operating expense, net” in the accompanying consolidated statements of income.

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, settlement assets, other current assets, customer deposits, settlement liabilities, and other current liabilities. At July 31, 2024 and 2023, 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 were classified as Level 1 and settlement assets, other current assets, customer deposits, settlement liabilities, and other current liabilities were classified as Level 2 of the fair value hierarchy.

Other assets and other liabilities. At July 31, 2024 and 2023, 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.

Note 10—Property, Plant, and Equipment

Property, plant, and equipment consist of the following:

The Company reduced its gross property, plant, and equipment and accumulated depreciation and amortization by $4.6 million and $4.2 million in fiscal 2024 and fiscal 2023, respectively, for property, plant, and equipment that was fully depreciated and no longer in service.

Depreciation and amortization expense of property, plant, and equipment was $19.1 million, $18.6 million, and $16.8 million in fiscal 2024, fiscal 2023, and fiscal 2022, respectively.

In fiscal 2023, the Company recorded an expense of $0.1 million for telephone equipment that was taken out of service, which was included in “Other operating expense, net” in the accompanying consolidated statements of income.

Note 11—Goodwill

The table below reconciles the change in the carrying amount of goodwill by operating segment:

Note 12—Other Intangible Assets

The table below presents information on the Company’s amortized intangible assets:

In March 2024, the Company completed a portion of the integration of the Leaf Wallet platform into the BOSS Money app, including replacing the Leaf tradename with BOSS Money. The Leaf tradename balance of $0.1 million was written-off in fiscal 2024.

Amortization expense of intangible assets was $1.3 million, $1.5 million, and $1.3 million in fiscal 2024, fiscal 2023, and fiscal 2022, respectively. The Company estimates that amortization expense of intangible assets with finite lives will be $1.2 million, $1.2 million, $1.1 million, $1.0 million, and $0.6 million in fiscal 2025, fiscal 2026, fiscal 2027, fiscal 2028, and fiscal 2029, respectively.

Note 13—Variable Interest Entity

The Company is the primary beneficiary of a variable interest entity (“VIE”) that operates money transfer businesses. The Company determined that, effective May 31, 2021, it had the power to direct the activities of the VIE that most significantly impact its economic performance, and the Company has the obligation to absorb losses of and the right to receive benefits from the VIE that could potentially be significant to it. As a result, the Company consolidates the VIE. The Company does not currently own any interest in the VIE and thus the net income incurred by the VIE was attributed to noncontrolling interests in the accompanying statements of income.

The VIE’s net income and aggregate funding provided by (repaid to) the Company were as follows:

The VIE’s summarized consolidated balance sheet amounts are as follows:

The VIE’s assets may only be used to settle the VIE’s obligations and may not be used for other consolidated entities. The VIE’s liabilities are non-recourse to the general credit of the Company’s other consolidated entities.

Note 14—Other Operating Expense, Net

The following table summarizes the other operating expense, net by business segment:

Straight Path Communications Inc. Class Action

As discussed in Note 23, the Company (as well as other defendants) was named in a class action on behalf of the stockholders of the Company’s former subsidiary, Straight Path Communications Inc. (“Straight Path”). The Company incurred legal fees and recorded offsetting gains from insurance claims related to this action in fiscal 2024, fiscal 2023, and fiscal 2022. In fiscal 2024, the Company received the final payment from its insurance policy for these claims. On October 3, 2023, the Court of Chancery of the State of Delaware dismissed all claims against the Company, and found that, contrary to the plaintiffs’ allegations, the class suffered no damages. The plaintiffs will have 30 days from entry of the final order to file an appeal.

Grow New Jersey Assistance Act Tax Credit

In September 2017, the Company, the Company’s subsidiary IDT Domestic Telecom, Inc. (“IDT DT”), and certain other affiliates were certified by the New Jersey Economic Development Authority (“NJEDA”) as having met the requirements of the Grow New Jersey Assistance Act Tax Credit Program. The program provides for credits against a corporation’s New Jersey corporate business tax liability for maintaining a minimum number of employees in New Jersey, and that tax credits may be sold subject to certain conditions. On June 5, 2023, the Company received a 2019 tax credit certificate for $1.8 million from the NJEDA. In August 2023, the Company sold the certificate for cash of $1.6 million.

Contingent Consideration Liabilities

In fiscal 2024 and fiscal 2023, the Company determined that the requirements for the contingent consideration payments related to the Leaf acquisition would likely not be met. The Company recognized gains in the Fintech segment of $1.8 million and $1.6 million in fiscal 2024 and fiscal 2023, respectively, on the write-off of these contingent consideration payment obligations. Also, in fiscal 2024 and fiscal 2022, the Company determined that the requirements for contingent consideration payments related to an acquisition in a prior period would not be met. The Company recognized gains in the net2phone segment of $0.1 million and $0.3 million in fiscal 2024 and fiscal 2022, respectively, on the write-off of these contingent consideration payment obligations. In fiscal 2023, the Company increased the estimated fair value of acquisition-related contingent consideration in its Traditional Communications segment by $0.2 million.

Government Grants

In fiscal 2023 and fiscal 2022, Leaf received payments from government grants for the development and commercialization of blockchain-backed financial technologies.

Write-off of Capitalized Internal Use Software Costs

In fiscal 2024 and fiscal 2023, the Company reduced its unamortized capitalized internal use software costs for internal use software that was taken out of service and recorded expense of $0.3 million and $1.4 million, respectively.

Indemnification Claim

Beginning in June 2019, as part of a commercial resolution, the Company indemnified a cable telephony customer related to patent infringement claims brought against the customer. On May 8, 2023, the Company and the customer agreed to release the Company from the indemnification agreement in exchange for $3.9 million.

Note 15—Revolving Credit Facility

The Company’s subsidiary, IDT Telecom, Inc. (“IDT Telecom”), entered into a credit agreement, dated as of May 17, 2021, with TD Bank, N.A. for a revolving credit facility for up to a maximum principal amount of $25.0 million. As of July 15, 2024 and July 28, 2023, IDT Telecom and TD Bank, N.A. amended certain terms of the credit agreement. IDT Telecom may use the proceeds to finance working capital requirements and for certain closing costs of the facility. At July 31, 2024 and 2023, there wereno amounts outstanding under this facility. In fiscal 2024, fiscal 2023, and fiscal 2022, IDT Telecom borrowed and repaid an aggregate of $32.9 million, $27.4 million, and $2.6 million, respectively, under the facility. The revolving credit facility is secured by primarily all of IDT Telecom’s assets. The principal outstanding bears interest per annum at the secured overnight financing rate published by the Federal Reserve Bank of New York plus 10 basis points, plus depending upon IDT Telecom’s leverage ratio as computed for the most recent fiscal quarter, 125 to 175 basis points. Interest is payable monthly, and all outstanding principal and any accrued and unpaid interest is due on May 16, 2026. IDT Telecom pays a quarterly unused commitment fee of 10 basis points 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 targets based on financial ratios during the term of the revolving credit facility. As of July 31, 2024 and 2023, IDT Telecom was in compliance with all of the covenants.

In the first quarter of fiscal 2025 through October 7, 2024, IDT Telecom borrowed and repaid an aggregate of $14.2 million under the facility.

Note 16—Accrued Expenses

Accrued expenses consist of the following:

Note 17—Redeemable Noncontrolling Interest

On September 29, 2021, NRS sold shares of its Class B common stock representing 2.5% of its outstanding capital stock on a fully diluted basis to Alta Fox Opportunities Fund LP (“Alta Fox”) for cash of $10 million. Alta Fox has the right to request that NRS redeem all or any portion of the NRS common shares that it purchased at the per share purchase price during a period of 182 days following the fifth anniversary of this transaction. The redemption right shall terminate upon the consummation of (i) a sale of NRS or its assets for cash or securities that are listed on a national securities exchange, (ii) a public offering of NRS’ securities, or (iii) a distribution of NRS’ capital stock following which NRS’ common shares are listed on a national securities exchange.

The shares of NRS’ Class B common stock sold to Alta Fox have been classified as mezzanine equity in the accompanying consolidated balance sheet because they may be redeemed at the option of Alta Fox, although the shares are not mandatorily redeemable. The carrying amount of the shares includes the noncontrolling interest in the net income of NRS. The net income attributable to the mezzanine equity’s noncontrolling interest during the periods were as follows:

Note 18—Other Expense, Net

Other expense, net consists of the following:

Note 19—Income Taxes

The components of income before income taxes are as follows:

Significant components of the Company’s deferred income tax assets consist of the following:

The (provision for) benefit from income taxes consist of the following:

The differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes provided are as follows:

The Company’s cumulative undistributed foreign earnings are included in retained earnings in the Company’s consolidated balance sheets and consisted of approximately $297 million at July 31, 2024. The Company has concluded that the earnings remain permanently reinvested.

At July 31, 2024, the Company had U.S. federal net operating loss carryforwards of approximately $86 million. These loss carryforwards are available to offset future U.S. federal taxable income. U.S. federal net operating loss carryforwards of $83 million expire in fiscal 2028 through fiscal 2038, and $3 million do not expire. The Company has foreign net operating loss carryforwards of approximately $74 million, of which approximately $63 million does not expire, approximately $10 million expires in two to ten years, and approximately $1 million expires in twenty years. These foreign loss carryforwards are available to offset future taxable income in the countries in which the losses were incurred. The Company’s subsidiary, net2phone, has additional U.S. federal net operating loss carryforwards of approximately $11 million, which will expire through fiscal 2027. With the reacquisition of net2phone by the Company in March 2006, its losses were limited under Internal Revenue Code (“IRC”) Section 382 to approximately $7 million per year. In fiscal 2024, the Company had an IRC Section 382 study conducted on the reacquisition and the limitation was adjusted to $9 million per year. The Company recorded a tax benefit related to the adjusted amount of $23.6 million in fiscal 2024. The net operating loss carryforwards do not include any excess benefits related to stock options or restricted stock.

The change in the valuation allowance is as follows:

In fiscal 2024, the Company increased the valuation allowance by $3.0 million, which included the establishment of a valuation allowance of $3.5 million for deferred income tax assets that were not more likely than not going to be utilized prior to expiration, net of a decrease of $0.2 million due to the utilization or disposal of previously valued deferred income tax assets and a release of $0.3 million for profitability in the United Kingdom.

In fiscal 2023, the Company decreased the valuation allowance by $1.0 million, which included a decrease of $2.8 million due to the utilization or disposal of previously valued deferred income tax assets and a release of $0.7 million for profitability in the United Kingdom, net of an establishment of $2.5 million for deferred income tax assets that were not more likely than not going to be utilized prior to expiration.

At July 31, 2024 and 2023, the Company did not have any unrecognized income tax benefits. There were no changes in the balance of unrecognized income tax benefits in fiscal 2024, fiscal 2023, and fiscal 2022. At July 31, 2024, the Company did not expect any changes in unrecognized income tax benefits during the next twelve months. In fiscal 2024, fiscal 2023, and fiscal 2022, the Company did not record any interest and penalties on income taxes. At July 31, 2024 and 2023, there was no accrued interest included in current income taxes payable.

The Company currently remains subject to examinations of its tax returns as follows: U.S. federal tax returns for fiscal 2021 to fiscal 2024, state and local tax returns generally for fiscal 2020 to fiscal 2024, and foreign tax returns generally for fiscal 2020 to fiscal 2024.

Note 20—Equity

Class A Common Stock and Class B Common Stock

The rights of holders of Class A common stock and Class B common stock are identical except for certain voting and conversion rights and restrictions on transferability. The holders of Class A common stock and Class B common stock receive identical dividends per share when and if declared by the Company’s Board of Directors. In addition, the holders of Class A common stock and Class B common stock have identical and equal priority rights per share in liquidation. The Class A common stock and Class B common stock do not have any other contractual participation rights. The holders of Class A common stock are entitled to three votes per share and the holders of Class B common stock are entitled to one-tenth of a vote per share. Each share of Class A common stock may be converted into one share of Class B common stock, at any time, at the option of the holder. Shares of Class A common stock are subject to certain limitations on transferability that do not apply to shares of Class B common stock.

Dividend Payments

In March 2024, the Company’s Board of Directors initiated a quarterly cash dividend of $0.05 per share on the Company’s Class A and Class B common stock. In fiscal 2024, the Company paid aggregate cash dividends of $2.5 million on its Class A and Class B common stock.

In September 2024, the Company’s Board of Directors declared a dividend of $0.05 per share to holders of the Company’s Class A and Class B common stock. The dividend was paid on October 7, 2024 to stockholders of record as of the close of business on September 30, 2024.

Stock Repurchases

The Company has an existing stock repurchase program authorized by its Board of Directors for the repurchase of shares of the Company’s Class B common stock. The Board of Directors authorized the repurchase of up to 8.0 million shares in the aggregate. In fiscal 2024, the Company repurchased 298,421 shares of Class B common stock for an aggregate purchase price of $9.1 million. In fiscal 2023, the Company repurchased 511,546 shares of Class B common stock for an aggregate purchase price of $13.1 million. In fiscal 2022, the Company repurchased 554,744 shares of Class B common stock for an aggregate purchase price of $13.4 million. At July 31, 2024,4.4 million shares remained available for repurchase under the stock repurchase program.

In the first quarter of fiscal 2025 through October 7, 2024, the Company repurchased 37,714 shares of its Class B common stock for an aggregate purchase price of $1.3 million.

In fiscal 2024, fiscal 2023, and fiscal 2022, the Company paid $1.5 million, $0.8 million, and $9.0 million, respectively, to repurchase 41,994;28,227; and 200,438; respectively, of the Company’s Class B common stock that were tendered by employees of the Company to satisfy the employees’ tax withholding obligations in connection with the vesting of deferred stock units (“DSUs”), the lapsing of restrictions on restricted stock, and shares issued for bonus payments. Such shares were repurchased by the Company based on their fair market value as of the close of business on the trading day immediately prior to the vesting date.

Exchange of NRS Equity for Shares of the Company’s Class B Common Stock and Cash

In June 2024, the Company initiated a tender offer to purchase 10% of each qualified holder’s outstanding DSUs of NRS in exchange for cash or shares of the Company’s Class B common stock. In July 2024, certain qualified holders tendered and sold an aggregate of 199,687 NRS DSUs to the Company, and, as a condition of the tender offer, each DSU seller granted to the Company an option, exercisable in the Company’s sole discretion for a period of one year, to purchase an additional aggregate 199,687 DSUs at the same purchase price. In addition, in July 2024, certain holders of NRS DSUs and shares of NRS’ Class B common stock sold an aggregate of 10,000 NRS DSUs and 142,500 shares of NRS’ Class B common stock to the Company, and, each of these sellers granted to the Company an option, exercisable in the Company’s sole discretion for a period of one year, to purchase an additional aggregate 10,000 NRS DSUs and 142,500 shares of NRS’ Class B common stock with the purchase price to be paid in shares of the Company’s Class B common stock with a value based on an average closing price of the Company’s Class B common stock at the time of the exercise notice. The NRS DSUs and shares in the exchange represented an aggregate of 0.2% of NRS’ outstanding capital stock on a fully diluted basis. The NRS DSUs and shares were exchanged for an aggregate of 13,042 and 12,094 shares of the Company’s Class B common stock that were issued in July 2024 and August 2024, respectively, and cash of $0.1 million, with an aggregate value of $1.0 million based on agreed-upon valuations of the NRS DSUs and NRS Class B common stock and the market value of the Company’s Class B common stock at the time of issuance. The Company accounted for the exchange of NRS’ Class B common stock for shares of the Company’s Class B common stock as an equity transaction and recorded a decrease in “Noncontrolling interests” and an increase in “Additional paid-in capital” of $13,000, based on the carrying amount of the 0.09% noncontrolling interest in NRS. The Company accounted for the exchange of NRS’ DSUs for shares of the Company’s Class B common stock and cash as compensation expense and recorded stock-based compensation expense of $0.5 million based on the closing price of the shares of the Company’s Class B common stock on the date prior to the date that the shares were issued plus the cash paid.

In January 2024, three management employees of NRS exchanged shares of NRS’ Class B common stock that they held for shares of the Company’s Class B common stock with an equal value. The NRS shares in the exchange represented an aggregate of 1.25% of NRS’ outstanding shares (1.21% on a fully diluted basis), which were exchanged for an aggregate of 192,433 shares of the Company’s Class B common stock. The Company accounted for the exchange as an equity transaction and recorded a decrease in “Noncontrolling interests” and an increase in “Additional paid-in capital” of $0.1 million, based on the carrying amount of the 1.25% noncontrolling interest in NRS.

Stock Issued to Certain Executive Officers for Bonus Payments

In fiscal 2023, certain executive officers of the Company received performance bonuses for fiscal 2022 of an aggregate of $1.2 million, of which one-half was paid in cash and one-half was paid in shares of the Company’s Class B common stock. The Company issued 24,543 shares of its Class B common stock with an issue date value of $0.6 million for the bonus payments.

Note 21—Stock-Based Compensation

2024 Equity Incentive Plan

On December 13, 2023, the Company’s stockholders approved the adoption of the Company’s 2024 Equity Incentive Plan (the “2024 Plan”), which is intended to provide incentives to officers, employees, directors, and consultants of the Company, including stock options, stock appreciation rights, DSUs, and restricted stock, from and after September 16, 2024. At July 31, 2024, the Company had 250,000 shares of Class B common stock reserved for the grant of awards under the 2024 Plan, all of which were available for future grants.

2015 Stock Option and Incentive Plan

The 2015 Stock Option and Incentive Plan (the “2015 Plan”) was intended to provide incentives to officers, employees, directors, and consultants of the Company, including stock options, stock appreciation rights, limited rights, DSUs, and restricted stock. The 2015 Plan expired on September 16, 2024. In fiscal 2024, fiscal 2023, and fiscal 2022, the Company’s stockholders approved amendments to the 2015 Plan to increase the number of shares of the Company’s Class B common stock available for the grant of awards thereunder by an additional 250,000;50,000; and 175,000 shares, respectively.

Stock Options

Option awards have generally been granted with an exercise price equal to the market price of the Company’s stock on the date of grant. Option awards generally vest on a graded basis over three years of service and had ten-year contractual terms. No option awards were granted in fiscal 2024, fiscal 2023, or fiscal 2022. When issued, the fair value of stock options is estimated on the date of the grant using a Black-Scholes valuation model. Expected volatility is based on historical volatility of the Company’s Class B common stock and other factors. The Company uses historical data on exercise of stock options, post vesting forfeitures and other factors to estimate the expected term of the stock-based payments granted. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of stock option activity for the Company is as follows:

In fiscal 2024, fiscal 2023, and fiscal 2022, the Company received cash from the exercise of stock options of $0.2 million, $0.2 million, and $0.1 million, respectively, for which the Company issued 12,500;12,500; and 10,000 shares, respectively, of its Class B common stock. In addition, in April 2022, Howard S. Jonas exercised stock options for 1.0 million shares of the Company’s Class B common stock that were granted on May 2, 2017. The exercise price of these options was $14.93 per share and the expiration date was May 1, 2022. Mr. Jonas used 528,635 shares of the Company’s Class B common stock with a value of $14.9 million to pay the aggregate exercise price of the options. Mr. Jonas tendered 137,364 shares of the Company’s Class B common stock with a value of $3.9 million to satisfy a portion of his tax obligations in connection with his stock option exercises.

The total intrinsic value of options exercised during fiscal 2024, fiscal 2023, and fiscal 2022 was $0.1 million, $0.2 million, and $19.7 million, respectively. At July 31, 2024, there was no unrecognized compensation cost related to non-vested stock options.

Restricted Stock

The fair value of restricted shares of the Company’s Class B common stock is determined based on the closing price of the Company’s Class B common stock on the grant date. Share awards generally vest on a graded basis over three years of service.

A summary of the status of the Company’s grants of restricted shares of Class B common stock is presented below:

There are 24,000 non-vested restricted shares at July 31, 2024 included in the table above that will vest on February 25, 2025 only if the Company’s Class B common stock closes above $50 per share for ten consecutive trading days prior to February 25, 2025, otherwise the 24,000 restricted shares will be forfeited.

At July 31, 2024, there was $0.3 million of total unrecognized compensation cost related to non-vested restricted shares, which is expected to be recognized over a weighted-average period of 0.9 years. The total grant date fair value of shares vested in fiscal 2024, fiscal 2023, and fiscal 2022 was $0.7 million, $0.5 million, and $1.0 million, respectively.

Deferred Stock Units Equity Incentive Programs

On November 30, 2022, the Company adopted an equity incentive program (under the 2015 Plan) in the form of grants of DSUs that, upon vesting, will entitle the grantees to receive shares of the Company’s Class B common stock. The number of shares that will be issuable on each vesting date will vary between 50% to 200% of the number of DSUs that vest on that vesting date, depending on the market price for the underlying Class B common stock on the vesting date relative to the base price approved by the Compensation Committee of the Company’s Board of Directors of $25.45 per share (which was based on the market price at the time of the initial grants under this program). On February 21, 2024 and on May 17, 2023, in accordance with the program and based on certain elections made by grantees, the Company issued 53,706 and 41,945 shares, respectively, of its Class B common stock for vested DSUs. Subject to continued full time employment or other services to the Company, the remaining 147,540 DSUs are scheduled to vest on February 25, 2025, the final vesting date under the program. The Company estimated that the fair value of the DSUs on the date of grants was an aggregate of $5.4 million, which is being recognized on a graded vesting basis over the requisite service periods ending in February 2025. The Company used a risk neutral Monte Carlo simulation method in its valuation of the DSUs, which simulated the range of possible future values of the Company’s Class B common stock over the life of the DSUs.

The Company had a prior equity incentive program in the form of DSUs that, upon vesting, entitled the grantees to receive shares of the Company’s Class B common stock. On January 5, 2022, the Company issued 301,296 shares of its Class B common stock in respect of vested DSUs.

Effective as of September 21, 2020, the Company granted 4,000 DSUs that were not included in the program described above, which upon vesting, entitled the grantee to receive shares of the Company’s Class B common stock. In fiscal 2024, fiscal 2023, and fiscal 2022, the Company issued 1,333,1,333, and 1,334 shares, respectively, of its Class B common stock in respect of the vesting of these DSUs.

A summary of the status of the Company’s grants of DSUs is presented below:

At July 31, 2024, there was $0.6 million of total unrecognized compensation cost related to non-vested DSUs, which is expected to be recognized over a weighted-average period of 0.4 years. The total grant date fair value of DSUs vested in fiscal 2024, fiscal 2023, and fiscal 2022 was $1.1 million, $0.9 million, and $1.6 million, respectively.

Amended and Restated Employment Agreement with Abilio (“Bill”) Pereira

On December 21, 2023, the Company entered into an Amended and Restated Employment Agreement with Bill Pereira, the Company’s President and Chief Operating Officer. The agreement provides for, among other things, certain equity grants, including 23,500 DSUs that, upon vesting, represent the right to receive shares of the Company’s Class B common stock (which are included in the DSU table above), and 50,000 shares of Class B common stock of net2phone 2.0, as well as a contingent bonus subject to the completion of certain financial milestones as set forth in the agreement. In fiscal 2024, two of these milestones were achieved, for which the Company issued to Mr. Pereira 39,155 shares of its Class B common stock in fiscal 2024 with an issue date value of $1.5 million, and the Company will issue an additional 39,155 shares of its Class B common stock in the first quarter of fiscal 2025. In fiscal 2024, the Company recorded aggregate stock-based compensation expense of $4.1 million related to these equity grants and the contingent bonus, which is included in “Selling, general and administrative expense” in the accompanying consolidated statements of income.

Stock Issued to an Employee

In fiscal 2023, the Company granted 15,000 shares of its Class B common stock to an employee. The Company recorded stock-based compensation expense and an increase in “Additional paid-in capital” of $0.4 million for this grant, which was the fair value of the shares on the grant date.

NRS Restricted Common Stock

Effective as of June 30, 2022, restricted shares of NRS’ Class B common stock representing 1.2% of its outstanding capital stock on a fully diluted basis were granted to certain NRS employees. The restrictions on the shares will lapse in three installments, the first was on June 1, 2024, and the others are June 1, 2026, and June 1, 2027. The estimated fair value of the restricted shares on the grant date was $3.3 million, which is being recognized over the vesting period. At July 31, 2024, unrecognized compensation cost related to NRS’ non-vested Class B common stock was an aggregate of $1.9 million. The unrecognized compensation cost is expected to be recognized over the remaining vesting period that ends in fiscal 2027.

In connection with the vesting of the restricted shares of NRS Class B common stock on June 1, 2024, the Company repurchased a portion of the shares representing an aggregate of 0.17% of the outstanding shares of NRS with an aggregate fair value of $0.6 million to satisfy the grantees’ tax withholding obligations in connection with the lapsing of restrictions on restricted stock. The fair value per share of the NRS Class B common stock was based on a valuation of the total equity of NRS using a market approach and income approach. The Company recorded a decrease in “Noncontrolling interests” of $21,000 and a decrease in “Additional paid-in capital” of $0.6 million, and an offsetting income tax withholding liability of $0.6 million.

In February 2022, restricted shares of NRS’ Class B common stock representing 0.4% of its outstanding capital stock on a fully diluted basis were granted to certain employees of the Company for services provided. The Company recorded stock-based compensation expense and an increase in “Additional paid-in capital” of $1.2 million for these grants, based on the estimated fair value on the grant date.

net2phone 2.0, Inc. Restricted Common Stock

On December 31, 2020, a compensatory arrangement with each of Howard S. Jonas and Shmuel Jonas, the Company’s Chief Executive Officer, was finalized. Howard S. Jonas and Shmuel Jonas each received 0.5 million restricted shares of net2phone 2.0’s Class B common stock, which represented an aggregate of 10% of net2phone 2.0’s issued and outstanding common stock at the time of the grant. The shares entitle each grantee to proceeds only on a sale, spin-off, initial public offering, or other monetization of net2phone 2.0 and have protection from dilution for the first $15 million invested in net2phone 2.0 following the grant. In January 2024, the restrictions lapsed on these restricted shares. In addition, in January 2024, Bill Pereira was granted 50,000 shares of net2phone 2.0 Class B common stock in connection with the agreement described above. The Company repurchased a portion of these shares representing an aggregate of 4.5% of the outstanding shares of net2phone 2.0 with an aggregate fair value of $3.6 million to satisfy the grantees’ tax withholding obligations in connection with the lapsing of restrictions on restricted stock or the grant of shares. The fair value per share of the net2phone 2.0 Class B common stock was based on a valuation of the business enterprise using a market approach and income approach. The Company recorded an increase in “Noncontrolling interests” of $53,000 and a decrease in “Additional paid-in capital” of $3.61 million, and an offsetting income tax withholding liability of $3.6 million.

Note 22—Accumulated Other Comprehensive Loss

The accumulated balances for each classification of other comprehensive loss were as follows:

Note 23—Commitments and Contingencies

On July 5, 2017, plaintiff JDS1, LLC, on behalf of itself and all other similarly situated stockholders of Straight Path, and derivatively on behalf of Straight Path as nominal defendant, filed a putative class action and derivative complaint in the Court of Chancery of the State of Delaware against the Company, The Patrick Henry Trust (a trust formed by Howard S. Jonas that held record and beneficial ownership of certain shares of Straight Path he formerly held), Howard S. Jonas, and each of Straight Path’s directors. The complaint alleged that the Company aided and abetted Straight Path Chairman of the Board and Chief Executive Officer Davidi Jonas, and Howard S. Jonas in his capacity as controlling stockholder of Straight Path, in breaching their fiduciary duties to Straight Path in connection with the settlement of claims between Straight Path and the Company related to potential indemnification claims concerning Straight Path’s obligations under the Consent Decree it entered into with the Federal Communications Commission (“FCC”), as well as the sale of Straight Path’s subsidiary Straight Path IP Group, Inc. to the Company in connection with that settlement. That action was consolidated with a similar action that was initiated by The Arbitrage Fund. The Plaintiffs sought, among other things, (i) a declaration that the action may be maintained as a class action or in the alternative, that demand on the Straight Path Board is excused; (ii) that the term sheet is invalid; (iii) awarding damages for the unfair price stockholders received in the merger between Straight Path and Verizon Communications Inc. for their shares of Straight Path’s Class B common stock; and (iv) ordering Howard S. Jonas, Davidi Jonas, and the Company to disgorge any profits for the benefit of the class Plaintiffs. On August 28, 2017, the Plaintiffs filed an amended complaint. The trial was held in August and December 2022, and closing arguments were presented on May 3, 2023. On October 3, 2023, the Court of Chancery of the State of Delaware dismissed all claims against the Company, and found that, contrary to the plaintiffs’ allegations, the class suffered no damages. On July 22, 2024, oral argument was held in the Court of Chancery of the State of Delaware on the issue of attorney’s fees sought by plaintiff’s counsel against Howard S. Jonas. The parties are awaiting the final order from the court. The plaintiffs will have 30 days from entry of the final order to file an appeal.

In addition to the foregoing, the Company is subject to other legal 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.

Sales Tax Contingency

On June 21, 2018, the United States Supreme Court rendered a decision in South Dakota v. Wayfair, Inc., holding that a state may require a remote seller with no physical presence in the state to collect and remit sales tax on goods and services provided to purchasers in the state, overturning certain existing court precedent. It is possible that one or more jurisdictions may assert that the Company has liability for periods for which it has not collected sales, use or other similar taxes, and if such an assertion or assertions were successful it could materially and adversely affect the Company’s business, financial position, and operating results. One or more jurisdictions may change their laws or policies to apply their sales, use or other similar taxes to the Company’s operations, and if such changes were made it could materially and adversely affect the Company’s business, financial position, and operating results.

Regulatory Fees Audit

The Company’s 2017 FCC Form 499-A, which reported its calendar year 2016 revenue, was audited by the Universal Service Administrative Company (“USAC”). The USAC’s final decision imposed a $2.9 million charge on the Company for the Federal Telecommunications Relay Service (“TRS”) Fund. The Company has appealed the USAC’s final decision to the FCC and does not intend to remit payment for the TRS Fund fees unless and until a negative decision on its appeal has been issued. The Company has made certain changes to its filing policies and procedures for years that remain potentially under audit. At July 31, 2024 and 2023, the Company’s accrued expenses included $25.9 million and $26.8 million, respectively, for FCC-related regulatory fees for the year covered by the audit, as well as prior and subsequent years.

Purchase Commitments

At July 31, 2024, the Company had purchase commitments of $2.9 million primarily for equipment and services.

Performance Bonds

The Company has 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. At July 31, 2024 and 2023, the Company had aggregate performance bonds outstanding of $32.4 million and $27.1 million, respectively. The increase in the performance bonds was due to increased money remittance transactions in fiscal 2024 compared to prior years.

Note 24—Related Party Transactions

Rafael Holdings, Inc.

In connection with the spin-off of Rafael in March 2018, the Company and Rafael entered into a Transition Services Agreement pursuant to which certain administrative and other services are provided by the Company and Rafael. The Company charged Rafael $0.3 million in each of fiscal 2024, fiscal 2023, and fiscal 2022 for services provided, net of the amounts charged by Rafael to the Company. At both July 31, 2024 and 2023, other current assets reported in the Company’s consolidated balance sheets included net receivable from Rafael of $0.1 million.

See Note 4 regarding the Company’s office lease arrangements with Rafael.

Genie Energy Ltd.

The Company entered into a Transition Services Agreement with Genie Energy Ltd. (“Genie”) prior to the spin-off of Genie in October 2011, which provides for certain services to be performed by the Company and Genie. The Company charged Genie $0.9 million, $1.2 million, and $1.3 million in fiscal 2024, fiscal 2023, and fiscal 2022, respectively, for services provided and other items, net of the amounts charged by Genie to the Company. At July 31, 2024 and 2023, other current assets reported in the Company’s consolidated balance sheets included receivables from Genie of $0.3 million and $0.2 million, respectively.

Other Related Party Transactions

The Company provides office space, certain connectivity and other services to Jonas Media Group, a publishing firm owned by Howard S. Jonas. Billings for such services were $1,300; $2,000; and $2,000 in fiscal 2024, fiscal 2023, and fiscal 2022, respectively. The balance owed to the Company by Jonas Media Group was $5,300 and $4,000 as of July 31, 2024 and 2023, respectively.

Mason and Company Consulting, LLC (“Mason and Co.”), a company owned solely by Jonathan Mason, receives annual commissions and fees for the insurance brokerage referral and placement of certain of the Company’s insurance policies. Jonathan Mason is the husband of Joyce J. Mason, the Company’s General Counsel, and brother-in-law of Howard S. Jonas. Based on information the Company received from Jonathan Mason, the Company believes that Mason and Co. received commissions and fees from payments made by the Company in the aggregate amount of $57,000 in fiscal 2024, $62,000 in fiscal 2023, and $76,000 in fiscal 2022. Neither Howard S. Jonas nor Joyce Mason has any ownership or other interest in Mason and Co., or the commissions paid to Mason and Co., other than via the familial relationships with Jonathan Mason.

IDT DT leases space in a building in the Bronx, New York that is owned by a limited liability company that is jointly owned by Howard S. Jonas and Shmuel Jonas. The annual rent is $18,600.

The Company had loans receivable from employees aggregating $0.5 million and $0.5 million at July 31, 2024 and 2023, respectively, which are included in “Other current assets” in the accompanying consolidated balance sheets.

Note 25—Defined Contribution Plans

The Company maintains a 401(k) Plan available to all employees meeting certain eligibility criteria. The plan permits participants to contribute up to the maximum amount allowed by law. The plan provides for discretionary matching contributions that vest over the first five years of employment. The plan permits discretionary matching contributions to be granted as of December 31 of each year. All contributions made by participants vest immediately into the participant’s account. In fiscal 2024, fiscal 2023, and fiscal 2022, the Company’s expense related to the plan was $1.0 million, $1.1 million, and $1.0 million, respectively. The Company’s Class A common stock and Class B common stock are not investment options for the plan’s participants.