UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ Annual
report pursuant to section 13 or 15(d) of the securities exchange act of 1934
for the fiscal year ended July 31, 2020.
or
☐ Transition
report pursuant to section 13 or 15(d) of the securities exchange act of 1934.
Commission File Number: 1-16371
IDT Corporation
(Exact name of registrant as specified in
its charter)
520 Broad Street, Newark, New Jersey07102
(Address of principal executive offices, zip code)
(973)438-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section
12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Class B common stock, par value $0.1 per share IDT New York Stock Exchange
Securities registered pursuant to section
12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions
of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☒
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report
on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☒
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting stock
held by non-affiliates of the registrant, based on the adjusted closing price on January 31, 2020 (the last business day of the
registrant’s most recently completed second fiscal quarter) of the Class B common stock of $7.56 per share, as reported on
the New York Stock Exchange, was approximately $145.9 million.
As of October 9, 2020, the registrant had outstanding 23,901,532
shares of Class B common stock and 1,574,326 shares of Class A common stock. Excluded from these numbers are 2,080,969 shares of
Class B common stock and 1,698,000 shares of Class A common stock held in treasury by IDT Corporation.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant’s
Annual Meeting of Stockholders, to be held December 16, 2020, is incorporated by reference into Part III of this Form 10-K to the
extent described therein.
Index
IDT Corporation
Annual Report on Form 10-K
Part I 1
Item 1. Business. 1
Item 1A. Risk Factors. 14
Item 1B. Unresolved Staff Comments. 26
Item 2. Properties. 26
Item 3. Legal Proceedings. 26
Item 4. Mine Safety Disclosures. 27
Item 6. Selected Financial Data. 28
Item 7A. Quantitative and Qualitative Disclosures about Market Risks. 40
Item 8. Financial Statements and Supplementary Data. 40
Item 9A. Controls and Procedures. 41
Item 9B. Other Information. 42
Part III 43
Item 10. Directors, Executive Officers and Corporate Governance. 43
Item 11. Executive Compensation. 44
Item 14. Principal Accounting Fees and Services. 44
Item 15. Exhibits, Financial Statement Schedules. 45
Signatures 47
i
Part I
As used in this Annual Report, unless the context otherwise
requires, the terms the “Company,” “IDT,” “we,” “us,” and “our” refer
to IDT Corporation, a Delaware corporation, its predecessor, International Discount Telecommunications, Corp., a New York corporation,
and its subsidiaries, collectively. Each reference to a fiscal year in this Annual Report refers to the fiscal year ending in the
calendar year indicated (for example, fiscal 2020 refers to the fiscal year ended July 31, 2020).
Item 1. Business.
OVERVIEW
We are a multinational company with operations primarily in
the communications and payment services industries. We have two reportable business segments, Telecom & Payment Services and
net2phone. Our Telecom & Payment Services segment, which represented 96.2% and 96.6% of our total revenues in fiscal 2020 and
fiscal 2019, respectively, provides retail telecommunications and payment offerings as well as wholesale international long-distance
traffic termination. Our net2phone segment, which represented 3.8% and 3.4% of our total revenues in fiscal 2020 and fiscal 2019,
respectively, provides cloud communications and telephony services to business customers.
Our Telecom & Payment Services segment comprises Growth
and Core verticals:
● Growth includes two primary businesses:
Core also includes smaller communications and payments
offerings, many in harvest mode.
Our net2phone segment is comprised of two verticals:
Financial information by segment is presented in Note 23 to
our Consolidated Financial Statements in Item 8 of this Annual Report.
Our headquarters is located at 520 Broad Street, Newark, New
Jersey 07102. The main telephone number at our headquarters is (973) 438-1000 and our corporate website’s home page is www.idt.net.
We make available free of charge our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports, and all beneficial ownership
reports on Forms 3, 4 and 5 filed by directors, officers and beneficial owners of more than 10% of our equity through the investor
relations page of our website (http://ir.idt.net/) as soon as reasonably practicable after such material is electronically filed
with the Securities and Exchange Commission. Our website also contains information not incorporated into this Annual Report on
Form 10-K or our other filings with the Securities and Exchange Commission.
1
KEY EVENTS IN OUR HISTORY
1990 – Howard S. Jonas, our founder, launched International
Discount Telephone to provide international call re-origination services.
1995 – We began selling wholesale services to other long-distance
carriers by leveraging our access to favorable international telephone rates generated by our retail calling traffic.
1996 – We successfully complete an initial public offering
of our common stock.
1997 – We began marketing prepaid calling cards to provide
convenient and affordable international long-distance calls.
2000 – We complete the sale of a stake in our net2phone
subsidiary, a pioneer in the development and commercialization of VoIP technologies and services, to AT&T for approximately
$1.1 billion in cash. We subsequently repurchased net2phone from AT&T.
2001 – Our common stock is listed on the New York Stock
Exchange, or NYSE.
2004 – We launch a retail energy business to provide electricity
and natural gas to residential and small business customers in New York.
2006 – We sell our Russian telecom business, Corbina,
for $129.9 million in cash.
2007 – We complete the sale of IDT Entertainment to Liberty
Media for $220 million in cash, stock and other considerations.
2008 –We launch BOSS Revolution PIN-less, a pay-as-you-go
international calling service. BOSS Revolution has since become our flagship brand, and the BOSS Revolution platform has been expanded
to include payment offerings.
2009 – We spin-off our CTM Media Holdings subsidiary to
our stockholders. CTM Media Holdings has been renamed IDW Media Holdings, Inc. and its stock is traded on the OTC Pink Market with
the ticker symbol “IDWM”.
2011 – We spin-off our Genie Energy Ltd. subsidiary, which
provides electricity and natural gas and related services to residential and business customers in the United States and overseas.
Genie Energy’s common stock is listed on the NYSE with the ticker symbol “GNE”.
2013 – We spin-off our subsidiary, Straight Path Communications,
Inc., or Straight Path, including its wireless spectrum holdings, to our stockholders. Straight Path was purchased in February
2018 by Verizon Communications Inc.
– We introduce the BOSS Revolution
Calling app for Android and iOS.
– We launch our BOSS Revolution international
money transfer service.
2014 – We sell our stake in Fabrix, a pioneer in cloud
storage and network delivery technologies, to Ericsson for $69 million.
2015 – net2phone launches its UCaaS offering in the United
States.
2016 – We spin-off our interest in our Zedge subsidiary
to our stockholders. Zedge provides a content platform for mobile device personalization including ringtones, wallpapers, home
screen icons and notification sounds. Zedge’s stock is listed on the NYSE American with the ticker symbol “ZDGE”.
– We launch NRS to provide POS-based
services to independent retailers in the United States.
– net2phone initiates global expansion
of its UCaaS offering with a launch in Brazil.
2017 – We introduce the BOSS Revolution Money app for Android and iOS.
2018 – We spin-off our interest in our Rafael Holdings,
Inc. subsidiary to our stockholders. Rafael Holdings holds real estate assets and stakes in early stage pharmaceuticals companies,
including Rafael Pharma, a privately held, clinical-stage, metabolic oncology therapeutics company. Rafael Holdings’ stock
is listed on the NYSE with the ticker symbol “RFL”.
2019 – net2phone’s cloud communications service
surpasses 100,000 service seats milestone.
– NRS adds its 10,000th
POS terminal to its retail network.
2
2020 - net2phone introduces its Huddle video
conferencing solution (beta) and integration with Microsoft Teams.
OUR STRATEGY
We are growing several high-margin, tech-centric businesses
that compete in the unified business communications and payment services markets. We believe that each of these businesses represents
an exceptional opportunity for long term value generation. Each of these businesses leverages one or more of our strategic assets
to obtain a distinct competitive advantage vis-a-vis more established competitors. Our current key growth businesses are:
● net2phone-UCaaS;
● BOSS Revolution Money Transfer; and
● NRS.
Our investment in these growth businesses is financed by the
cash flows generated by our maturing core offerings, obviating the need for debt financing and dilutive capital raises. Our core
offerings are:
● BOSS Revolution Calling;
● Mobile Top-Up; and
● Carrier Services.
Our core offerings participate, wholly or partially, in the
paid minute voice communications market. As such, they are subject to intense revenue and margin pressure as consumers migrate
to low-cost or free messaging services and other non-voice communications technologies, free peer-to-peer voice calls available
when both parties utilize broadband connections, and flat-rate international long distance plans offered both by the largest mobile
network operators and niche mobile virtual network operators. We work diligently to maximize cash flows from our core offerings
in part by introducing new features and enhancements to prolong their longevity and utility while reducing their overhead costs
and operating expenditures.
The increasing revenue contributions from our higher margin
growth businesses in combination with our efforts to maximize the cash flows from our lower margin core offerings have enabled
us to increase our consolidated margin contribution in recent quarters. We expect that this rotation toward our higher margin offerings
will continue and drive a long-term increase in our net margins.
Our higher-margin growth businesses and our core offerings are
synergistic and leverage one or more of our strategic assets including:
● The BOSS Revolution and net2phone brands;
● Our technology, global infrastructure and calling and transaction platforms;
● Extensive VoIP and cloud services expertise; and
● Our staff of more than 1,200 working in over 20 offices on four continents.
BUSINESS DESCRIPTION
Telecom & Payment Services
Our Telecom & Payment Services, or TPS, segment, represented
96.2% and 96.6% of our total revenues in fiscal 2020 and fiscal 2019, respectively. TPS offerings are classified in two verticals,
Growth and Core, as follows:
● BOSS Revolution Money Transfer; and
● National Retail Solutions.
● BOSS Revolution Calling;
● Mobile Top-Up; and
● Carrier Services.
Core also includes smaller communications and payments offerings,
which are managed to maximize their long-term cash-flows with minimal operating expenditures.
During fiscal 2020, our TPS segment generated $1,294.9 million
in revenues and income from operations of $42.3 million, as compared with revenues of $1,361.9 million and income from operations
of $14.3 million in fiscal 2019.
3
Telecom & Payment Services –
Growth
BOSS Revolution Money Transfer
BOSS Revolution Money Transfer revenues were $48.0 million in
fiscal 2020, an increase of 108% from fiscal 2019.
International money remittance is a significant economic activity
among our target market of foreign-born communities in the United States. Our BOSS Revolution Money Transfer business enables customers
in the United States to remit money to third parties in approximately 60 countries. The service is offered through licensed BOSS
Revolution authorized money transfer agents as well as directly to consumers via our digital platforms including the BOSS Revolution
Money app and the BOSS Revolution consumer website (www.bossrevolution.com).
BOSS Revolution Money Transfer’s largest and fastest growing
channel is direct-to-consumer via our digital platform. During fiscal 2020, approximately three-quarters of BOSS Revolution Money
Transfer’s transactions originated over the BOSS Revolution Money app. The BOSS Revolution Money app works seamlessly with
the BOSS Revolution app to enable customers with a debit or credit card to send money transfers and Mobile Top-Up easily and securely
directly from their iOS or Android device.
We continue to expand our BOSS Revolution Money Transfer customer
base by focusing our marketing efforts on converting the large BOSS Revolution Calling and Mobile Top-Up customer bases, as well
as bringing in new customers directly, primarily through attractive fee and foreign exchange rate offers.
We also continue to focus on sales through our nationwide network
of BOSS Revolution Money Transfer agents.
BOSS Revolution Money Transfer leverages the BOSS Revolution
retail network to afford unbanked and underbanked customers the ability to initiate transactions with cash. In order to provide
our remittance service, BOSS Revolution retailers must meet certain financial and other qualifications. To date, only a small fraction
of BOSS Revolution retailers have been authorized to offer money transfer services. Our internal sales force recruits new money
transfer agents to expand our origination network, and we continue to enhance our retail money transfer portal to facilitate adoption
and utilization of the money transfer offering by BOSS Revolution retailers.
We have also introduced a new Pay@Store service that allows
a customer to conveniently initiate a money transfer order within the BOSS Revolution Money app and to pay for it with cash at
an authorized Boss Revolution money transfer agent. Pay@Store brings many of the benefits of our BOSS Revolution Money app to our
under/unbanked customers.
BOSS Revolution Money Transfer’s payment network includes
payout locations in 59 countries and over 320,000 locations. In addition, remittances are offered to mobile wallets in some destinations.
BOSS Revolution Money Transfer generates revenues from a per-transaction
fee charged to the customer and from foreign exchange differentials. Our transaction costs include commissions paid to the retail
agent, payment to the international disbursing agent, banking, compliance, foreign currency exchange costs and, in the case of
direct-to-consumer transfers, credit and debit card processing fees in lieu of commissions paid to the retail agents.
National Retail Solutions (NRS)
NRS’ revenues were $12.0 million in fiscal 2020, a 93%
increase from fiscal 2019.
NRS provides transaction processing and related services to
independent retailers in the United States via its POS terminal-based platform. The NRS solution includes hardware and software
components integrated to provide tools that enable these retailers to compete more effectively against retail chains.
The POS terminal’s hardware includes cash registers, barcode
scanners, retailer and customer-facing hi-definition screens, receipt printers and credit card readers. NRS’ integrated,
proprietary software is offered as a service and provides operational tools including inventory management, sales tracking, price
book management and other useful features.
The primary market for NRS terminals is the more than 200,000
independently owned convenience, liquor, grocery and tobacco stores in the United States, many of which primarily serve foreign-born
communities.
4
During July 2020, over 10,000 retailers processed more than
46,000,000 transactions via NRS terminals. The number of NRS terminals active in the network
as of July 31, 2020 increased to more than 10,000 from 7,800 a year earlier. NRS sales and marketing is targeted,
in part, to our nationwide network of BOSS Revolution retailers. NRS has also entered into strategic relationships with more than
100 wholesale distributors including some of the largest cash-and-carry wholesalers in the United States.
NRS generates revenue from a portfolio of services for both
retailers and third parties.
The NRS business supports our BOSS Revolution communications
and payment offerings - BOSS Revolution Calling, BOSS Revolution Money Transfer, and Mobile Top-Up, all of which can be sold and
provisioned by retailers directly from their NRS terminals.
Telecom & Payment Services –
Core
BOSS Revolution Calling
BOSS Revolution Calling’s revenue was $463.9 million in
fiscal 2020 compared to $490.7 million in fiscal 2019 (35.8% and 36.0% of TPS’ revenue in fiscal 2020 and fiscal 2019, respectively).
Our BOSS Revolution Calling business is a prepaid international
long-distance calling service marketed primarily to foreign-born and under-banked consumers in the United States and Canada, and
digital only offering in Europe and Australia.
BOSS Revolution Calling offerings include our flagship ‘BOSS
Revolution’ branded international long-distance prepaid calling service as well as disposable hard cards sold under a variety
of brands. In the United States, BOSS Revolution Calling serves, as of July 31, 2020, approximately 3.7 million customers per month.
5
BOSS Revolution Calling is offered both through our extensive
national network of BOSS Revolution retailers and through the BOSS Revolution Calling app (for iOS and Android).
The majority of our customers purchase BOSS Revolution Calling
offerings through our nationwide network of BOSS Revolution retailers. At July 31, 2020, we had approximately 26,000 retailers
per month utilizing our digital retailer platform to provision customers, the substantial majority of whom pay the retailer in
cash. In addition, we estimate that approximately 9,000 retailers resell our disposable hard cards without utilizing our retailer
portal. BOSS Revolution retailers are typically independent retailers serving foreign-born communities with significant unbanked
or under-banked populations.
Usage of our BOSS Revolution Calling app has been growing rapidly.
At July 31, 2020, approximately 1.4 million customers per month utilized the BOSS Revolution Calling app.
BOSS Revolution Calling allows users to place international
long-distance calls at affordable rates from the BOSS Revolution Calling app or by calling an access number. Regardless of how
the call originates, our customers must first establish and top-up a prepaid BOSS Revolution account that is linked to their phone.
Once the account is established and a call is placed, our platform recognizes the customer’s phone through its network-provided
automatic number identification and seamlessly links each call to the corresponding BOSS Revolution account. Callers then enter
their destination phone numbers. BOSS Revolution Calling customers’ account balances are debited at a fixed rate per minute
or at a fixed amount for calling plans to a specific country over a specified time period. In contrast to certain of our competitors,
BOSS Revolution Calling does not charge connection, usage or breakage fees. BOSS Revolution Calling’s per minute rates vary
by the destination country, city, and whether the call is placed to a landline or mobile phone. Rates are published on the BOSS
Revolution consumer website and within the BOSS Revolution Calling app.
Customers can open a BOSS Revolution Calling account for free
and top-up with a debit or credit card using the BOSS Revolution Calling app, the BOSS Revolution consumer website (www.bossrevolution.com)
or phone, or with cash at any BOSS Revolution retailer.
In the United States, we distribute our BOSS Revolution Calling
hard cards and other retail products primarily through our network of distributors that, either directly or through sub-distributors,
sell to retail locations. In addition, our internal sales force sells BOSS Revolution Calling and other platform products directly
to retailers. Distributors, our internal salespeople, and retailers receive commissions based on the revenue generated by each
transaction or on a per-transaction basis, depending on the product.
The BOSS Revolution digital retailer platform can be accessed
via the internet by a computer or by Android and iOS smartphones and enables retailers to create accounts for new customers, add
funds to existing customer balances and execute sales transactions. It provides a direct, real-time interface with our BOSS Revolution
retailers, resulting in a cost-effective and adaptable distribution model that allows us to target and promote services directly
to distributors and retailers, to introduce and cross-sell new offerings, and to rapidly respond to changes in the business environment.
In the United States, the BOSS Revolution brand is supported
by national, regional and local marketing programs that include television and radio advertising, online advertising, print media,
and grass roots marketing at community and sporting events. In addition, we work closely with distributors and retailers on in-store
promotional programs and events.
BOSS Revolution Calling’s sales have traditionally been,
and continue to be, strongest in the Northeastern United States and in Florida because of our extensive local distribution network
and their large foreign-born populations. We continue to grow BOSS Revolution Calling’s distributor relationships and expand
BOSS Revolution Calling’s retail network in other areas of the United States and Canada, including the Southwest and West
Coast, where BOSS Revolution Calling historically has not had as strong of a market presence.
Mobile Top-Up
Mobile Top-Up’s revenue was $334.3 million in fiscal 2020
compared to $272.0 million in fiscal 2019 (25.8% and 20.0% of TPS’ revenue in fiscal 2020 and fiscal 2019, respectively).
Our Mobile Top-Up offerings enable customers to transfer airtime
and bundles of airtime, messaging, and data to recharge or ‘top-up’ mobile phone accounts internationally (International
Mobile Top-Up, or IMTU) and domestically (Domestic Mobile Top-Up, or DMTU). Mobile Top-Up’s offerings leverage our platform
capabilities, our distribution reach into foreign-born communities and our relationships with mobile operators around the world.
IMTU and DMTU offerings are sold under the BOSS Revolution brand
through the BOSS Revolution digital platforms, including our BOSS Revolution Calling and BOSS Revolution Money apps. Mobile Top-Up’s
offerings are also sold through our retail network including provisioning directly by retailers using our digital retailer platform
and through mobile operator-branded top-up cards. We offer Mobile Top-Up service for approximately 135 different carriers in 88
countries, primarily in Latin America, the Caribbean and Africa. The substantial majority of Mobile Top-Up’s revenue is generated
by the sale of IMTU offerings.
Carrier Services
Carrier Services’ revenue was $393.8 million in fiscal
2020 compared to $514.2 million in fiscal 2019, contributing 30.4% and 37.8% of TPS’ revenue in fiscal 2020 and fiscal 2019,
respectively.
6
Our Carrier Services business is one of the largest wholesale
carriers of international long-distance minutes in the world.
Carrier Services’ telecommunications network is comprised
of interconnections and commercial relationships that reach virtually every significant carrier globally. These relationships enable
us to carry international telecommunications traffic to more than 200 countries around the world. Carrier Services’ customers
include our BOSS Revolution Calling and net2phone businesses, major and niche carriers around the globe, mobile network operators,
and other service providers such as call aggregators. For many of these customers, particularly the major carriers, we engage in
buy-sell relationships, terminating their customers’ traffic in exchange for terminating our traffic with them.
Carrier Services offers competitively priced international termination
rates at several quality levels. We can offer competitively priced termination services in part because of the large volumes of
originating minutes generated by our BOSS Revolution Calling business, our global platform powered by proprietary software, our
team of professional and experienced account managers and market makers, and the global network of interconnections and relationships
with other telecom system operators around the globe.
TPS terminated 18.3 billion minutes in fiscal 2020, as compared
to 21.8 billion minutes in fiscal 2019. Carrier Services accounted for 14.4 billion minutes and 17.5 billion minutes of the total
TPS’ minutes in fiscal 2020 and fiscal 2019, respectively.
Carrier Services has a significant number of direct connections
to Tier 1 providers in North America, Latin America, Asia, Africa, Europe and the Middle East. Tier 1 providers are the largest
recognized licensed carriers in a country. Direct connections improve the quality of the telephone calls and reduce the cost, thereby
enabling us to generate more traffic with higher margins to the associated foreign locales. We also have direct relationships with
mobile network operators, reflecting their growing share of the voice traffic market.
Termination rates charged by Tier 1 and other providers of international
long-distance traffic have been declining for many years. Nevertheless, termination rates charged to us by individual Tier 1 carriers
and mobile operators can be volatile. Termination price volatility on heavily trafficked routes can significantly impact our minutes
of use and wholesale revenues.
In addition to offering competitive rates to our carrier customers,
we emphasize our ability to offer the high-quality connections that these providers often require. To that end, we offer higher-priced
services in which we provide higher-quality connections, based upon a set of predetermined quality of service criteria. These services
meet a growing need for higher-quality connections for some of our customers who provide services to high-value, quality-conscious
retail customers. As of July 31, 2020, Carrier Services had more than 2,100 customers and had more than 330 carrier relationships
globally.
Carrier Services’ revenue is generated by sales to both
postpaid and prepaid customers. Postpaid customers typically include Tier 1 carriers, mobile network operators and our most credit
worthy customers. The majority of Carrier Services’ prepaid customers connect via our IDT Express portal. IDT Express focuses
on delivering wholesale voice and direct inward dialing, or DID, services to small and medium size businesses domestically and
internationally. IDT Express offers the convenience of a mobile self-service portal paired with dedicated account managers, all
backed by customer support that is available at all times. Prepaid customers are typically smaller telecommunication companies
as well as independent call aggregators.
Carrier Services also provide outsourcing services to help fixed
and mobile telephony operators enhance the profitability and value of their international voice operations. Carrier Services offers
these operators customized solutions, including full outsourcing, handing all inbound and outbound calls with or without switch
management, and hybrid arrangements whereby the operator retains certain routes or customers directly. Pursuant to these deals,
Carrier Services collaborates with the companies to provide a full range of international long-distance services to their respective
customers in-country and overseas.
Carrier Services is subject to intense revenue and margin pressure
as consumers migrate to low-cost or free messaging services and other non-voice communications technologies, free peer-to-peer
voice calls available when both parties utilize broadband connections, and flat-rate international long distance plans offered
both by the largest mobile network operators and niche mobile virtual network operators.
International Operations
Internationally, Carrier Services’ products and services
are marketed and sold through our internal account management team.
Our operations in Europe include Carrier Services operations
in London, England. We also have operations in Germany, Spain, Italy, Ireland, and Greece. Our European operations, including Carrier
Services and BOSS Revolution Calling, generated $356.8 million of revenues in fiscal 2020, an 11% decline from the $401.2 million
of revenues generated during fiscal 2019. Our European operations’ revenues constituted 28% of TPS’ revenues in fiscal
2020, as compared to 30% in fiscal 2019.
7
In fiscal 2020, we generated $32.3 million in revenues from
our operations in the Asia-Pacific region compared to $47.7 million in fiscal 2019, primarily through our Carrier Services business.
We maintain our Asia-Pacific headquarters in Hong Kong. In August 2020, our BOSS Revolution business was wound down throughout
the Asia-Pacific region.
In Canada, the United Kingdom, Germany, Spain and Australia,
we sell BOSS Revolution platform products through our mobile calling app and direct-to-consumer websites.
In Latin America, we maintain our headquarters in Buenos Aires,
Argentina. In fiscal 2020, we generated $0.4 million in revenues primarily from the sale of prepaid calling in Latin America compared
to $0.7 million in fiscal 2019.
Sales, Marketing and Distribution
In the United States, we distribute our TPS retail products,
including prepaid calling, mobile top-up, money transfer and bill payment services to retail outlets. Our retail products are provisioned
directly through the BOSS Revolution digital retailer platform or through our network of distributors and our internal sales force.
In addition, our private label calling cards as well as our IDT-branded calling cards are also marketed to retail chains and outlets
through our internal sales force, and from time to time, we may utilize third-party agents or brokers to acquire accounts.
We also market our most significant retail offerings, including
BOSS Revolution Calling, Mobile Top-Up, and BOSS Revolution Money Transfer, directly to the consumer via digital channels including
the BOSS Revolution consumer website (www.bossrevolution.com) and the BOSS Revolution Calling and BOSS Revolution Money apps for
iOS and Android.
Carrier Services are marketed and sold through our internal
account management team and the IDT Express digital portal. In Canada, the United Kingdom, Germany, Spain and Australia, we sell
BOSS Revolution platform products through our mobile calling app and direct-to-consumer websites.
Communications and Payment Network Infrastructure and Technology
Development
We operate a global network to provide an array of telecommunications
and payment services to our customers worldwide using a combination of proprietary and third-party applications. Proprietary applications
include call routing and rating, customer provisioning, call management, e-commerce sites and digital platforms, product web pages,
calling card features, and payment services features. Proprietary applications provide the flexibility to adapt to evolving marketplace
demands without third-party software releases, and often provide advantages in capability or cost over third-party solutions.
Our core voice network utilizes VoIP and is interconnected,
where needed, through gateways to time-division multiplexing, or TDM, networks worldwide. This hybrid IP/TDM capability allows
us to interface with carriers using the lowest cost technology protocol available. To support our global reach, we operate voice
switches and/or points of presence in the United States, Europe, South America, Asia, and Australia. We receive and terminate voice
traffic from every country in the world, including cellular, landline, and satellite calls through direct and indirect interconnects.
The network includes data centers located in the United States, the United Kingdom, and Hong Kong, which house equipment used for
both our voice and payment services, with smaller points of presence in several other countries. Our global network is monitored
and operated on a continual basis by our Network Operations Center in the United States. We also make use of one of the leading
cloud providers to serve as host for some of our application infrastructure.
Our technology organization is responsible for the design, development,
testing, and delivery of new technologies and features of our products and services, as well as the continued improvement and iteration
of our existing products and services. It is also responsible for operating and scaling our proprietary calling and payment services
platform including the underlying cloud infrastructure. Our research and development investments seek to drive core technology
innovation and bring new products and services to the market. Research and development employees are located in our Newark office,
as well as remotely distributed. Our research and development team consist of our software engineering, product management, quality
engineering, voice engineering, business intelligence, systems and development operations teams. We intend to continue to invest
in our research and development capabilities to extend our products and services.
Our technology organization uses a number of key performance
indicators to track service quality. As of July 31, 2020, our technology organization has improved our aggregate service
uptime from approximately 99.9% in fiscal 2019 to approximately 99.92% for fiscal 2020. As of July 31, 2020, the defect escape
ratio, a measure of quality engineering was improved for our flagship BOSS Revolution brand from 8.5% in fiscal 2019 to 5% in fiscal
2020, meaning more than 95% of product defects were detected and fixed before being released to our customers.
8
Our product offerings and go-to-market strategy continue to
evolve, and we expect our product offerings to continue to become available to customers at more frequent intervals than our historical
release cycles. Our Agile development methodology is characterized by a dynamic development process with more frequent revisions
to a product release’s features and functions as the software is being developed. In addition, we have implemented a holistic
portfolio management process, which has improved transparency and efficiency across the portfolio through a monthly cadence of
business reviews.
net2phone
net2phone’s revenue was $50.8 million in fiscal 2020 compared
to $47.3 million in fiscal 2019. net2phone’s loss from operations was $14.7 million in fiscal 2020 compared to a loss from
operations of $6.5 million in fiscal 2019.
net2phone is comprised of two verticals:
net2phone-UCaaS’s revenue was $31.9 million in fiscal
2020, an increase from $24.5 million in fiscal 2019, and net2phone- Platform Services’ revenue was $18.9 million in fiscal
2020, a decrease from $22.8 million in fiscal 2019.
net2phone launched its UCaaS offering in 2015, leveraging our
deep expertise in VoIP communications, established technology team, and global telephony network. net2phone’s UCaaS offering
has become its primary growth engine and strategic focus.
The net2phone-UCaaS solution converges communications across
devices: desk phone, PC, and mobile via the net2phone platform, all backed by client management tools and analytics. net2phone’s
cloud-based platform replaces and improves upon on-premise private branch exchanges, or PBXs, which many businesses maintain to
operate their legacy phone systems. net2phone’s advanced feature set includes its mobile app, Web RTC, SMS/MMS, live chat
widget, voicemail to email transcription, and client analytics. net2phone adds features and enhancements to its offering on a regular
basis.
In 2020, net2phone began deployment of its proprietary platform
to enhance system reliability and facilitate the development and deployment of additional features and third-party integrations.
At its 2015 launch, net2phone’s UCaaS service was offered
only in the United States. In 2016, net2phone began its international expansion, offering cloud communications to businesses in
Brazil. net2phone expanded to Argentina in 2017, and Colombia and Mexico in 2018. In 2018,
net2phone entered the Canadian market through its acquisition of Versature Corp.,
a UCaaS provider serving the Canadian market. In 2019, net2phone entered the European market through the acquisition of RingSouth
Europa, a regional provider of cloud communications services to businesses in Spain.
We expect that net2phone
will continue to grow its revenues through expansion in both the U.S. and overseas markets. Overseas, net2phone is leveraging its
local presence, licensing, and our global infrastructure to provide a localized service. net2phone’s overseas markets are
large and typically characterized by low rates of UCaaS penetration, high levels of competitive fragmentation and, in many cases,
by a lack of significant attention from the global market leaders.
In March 2020, net2phone
released an integration with Microsoft’s popular Teams collaboration platform. The integration enables Teams users to leverage
net2phone’s global calling and messaging capabilities from within the Teams environment. In April 2020, net2phone released
its integrated video conferencing solution, net2phone Huddle.
net2phone’s future
growth catalysts include integrations with additional popular customer relationship management, or CRM,
platforms, development and deployment of other new features and functionality, expansion into additional geographic markets, further
customization for industry verticals, development of APIs enabling developers to customize solutions, and the development of a
direct-to-consumer channel, except in Canada where Versature already operates a robust direct-to-consumer channel.
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Sales, Marketing and Distribution
net2phone is focused on the agent channel marketplace and acquires
a substantial majority of its customers through its network of master agents, telecom agents and managed service providers in the
United States and internationally. Versature historically utilized a direct-to-consumer channel model to acquire customers in Canada.
In October 2019, Versature announced a channel market program, leveraging net2phone’s channel relationships and experience.
In fiscal 2021, net2phone expects to introduce a direct to business strategy to extend its market reach.
net2phone-UCaaS’s cloud communications offering is priced
on a per-seat basis, with each employee identity constituting a seat. Pricing is structured on a monthly base fee per seat, with
additional option-based charges including provisioning of pre-configured VoIP phones.
Competition
Telecom & Payment Services
National Retail Solutions (NRS)
NRS competes against several nationwide POS companies that primarily
service other retail store segments, but also service NRS’ target market of independent convenience, liquor, and tobacco
stores in the United States. These companies include, among others, Square, Clover, and NCR. We believe that NRS has a competitive
advantage because other nationwide POS companies do not offer the complete suite of services that NRS has tailored to the specific
needs of independent retailers. In addition, we do not believe that these competitors have NRS’ reach into the ethnic retailer
market where many retailers have established relationships with us and sell our BOSS Revolution offerings.
NRS also competes with smaller, regional POS companies that
focus on convenience stores. However, these regional players generally do not offer a comparable suite of POS services, have limited
capacity to scale their platforms, and/or are not price competitive.
BOSS Revolution Money Transfer
BOSS Revolution Money Transfer competes against traditional
international money transfer services with established retail and disbursement networks including Western Union, MoneyGram, Intermex,
and Ria, as well as many niche money transfer organizations that serve specific destination corridors. Our direct-to-consumer channel
competes with these operators as well as digital only entrants including Xoom, TransferWise, Remitly, and World-Remit that are
disrupting the retailer-based money transfer market. We continue to compete successfully in part by migrating customers from other
BOSS Revolution offerings to Money Transfer leveraging our well-regarded BOSS Revolution brand, insights into our customers, and
our cross-marketing capabilities. We compete for customers outside the BOSS Revolution ecosystem primarily based on brand reputation,
low fees, and competitive foreign exchange rates.
BOSS Revolution Calling
BOSS Revolution Calling is subject to fierce competition, and
we do not expect to grow revenues and/or margins without a successful strategy and sound execution. While virtually any company
offering communication services is a competitor, we face particularly strong competition from Tier 1 mobile network operators who
offer flat-rate international calling plans, other PIN-less prepaid voice offerings, prepaid calling card providers, mobile virtual
network operators, and VoIP and other “over the top”, or OTT, service providers. Outside the United States, we also
compete with large state-owned or state-sanctioned telephone companies.
Many of these companies, such as AT&T, Verizon, and T-Mobile,
are substantially larger and have greater financial, technical, engineering, personnel and marketing resources, longer operating
histories, greater name recognition, and larger customer bases than we do. We may not be able to compete successfully if one or
more of these companies use their substantial resources in or to affect the international prepaid calling market.
In addition to these larger competitors, we face significant
competition from smaller prepaid calling providers.
From time-to-time, competitors offer rates that are substantially
below ours to gain market share. In some instances, these rates are below what we believe to be the cost to provide the service.
This predatory pricing can adversely affect our revenues and our gross margins.
The continued growth of OTT calling and messaging services such
as Skype, Viber, and WhatsApp have adversely affected the sales of BOSS Revolution Calling and our other prepaid calling services.
We expect the popularity of these IP-based services—many of which offer free voice and/or video communications provided both
the caller and recipient have a broadband connection—to continue to increase, which will increase substitution for, and pricing
pressure on, our BOSS Revolution Calling and other international prepaid calling offerings.
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Many wireless operators offer unlimited international long-distance
plans that include international destinations to which customers can place direct calls from their mobile phones without time limitation.
These plans now include some of our most popular international destinations. The growth of these “international unlimited”
plans adversely affects our revenues as these operators gain subscriber market share.
Our ability to compete successfully against these operators
stems from several factors, including:
Our ability to maintain and/or to capture additional market
share will remain dependent upon our ability to continue to provide competitively priced services, to maintain our distribution
and retail networks, to increase usage through the BOSS Revolution Calling app, and to innovate new products and services to fit
the evolving needs of our customers.
Carrier Services
The wholesale carrier industry has numerous entities competing
for the same customers, primarily based on price and quality of service.
In our Carrier Services business, we participate in a global
marketplace with:
● on-line, spot-market trading exchanges for voice minutes;
● OTT internet telephony providers;
● other VoIP providers;
● other providers of international long-distance services; and
We believe that our Carrier Services business derives a competitive
advantage from several inter-related factors:
● our professional and experienced account management; and
In aggregate, we believe that these factors provide us with
a competitive advantage over some participants on certain routes.
Mobile Top-Up
The major competitors to our Mobile Top-Up business include:
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net2phone
Major competitors to our net2phone offerings include other UCaaS
and hosted voice providers such as Vonage Business, Nextiva, 8x8, LogMeIn, and Ring Central. Due to their longevity and substantial
investments in the marketplace, these providers offer more widely recognized brands, larger and more developed marketing and sales
forces and/or channel agent networks, and more advanced product sets such as services designed specifically for call centers, messaging
and chat, and solutions customized for specific market segments. These competitors’ offerings typically also support integration
of their services with other well-known, third-party CRM vendors such as SalesForce, Zoho, and SugarCRM, as well as with various
Google applications.
REGULATION
The following summary of regulatory developments and legislation
is intended to describe what we believe to be the most important, but not all, current and proposed international, federal, state,
and local laws, regulations, orders, and legislation that are likely to materially affect us.