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, 2021.
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 29, 2021 (the last business day of the registrant’s most recently completed second fiscal quarter) of the Class B common
stock of $14.03 per share, as reported on the New York Stock Exchange, was approximately $292.2 million.
As
of October 12, 2021, the registrant had outstanding 24,187,563shares of Class B common stock and 1,574,326shares of Class A common stock. Excluded from
these numbers are 2,191,634 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 15, 2021, 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. 16
Item 1B. Unresolved Staff Comments. 29
Item 2. Properties. 29
Item 3. Legal Proceedings. 30
Item 4. Mine Safety Disclosures. 30
Item 6. Selected Financial Data. 31
Item 7A. Quantitative and Qualitative Disclosures about Market Risks. 44
Item 8. Financial Statements and Supplementary Data. 44
Item 9A. Controls and Procedures. 44
Item 9B. Other Information. 47
Part III 47
Item 10. Directors, Executive Officers and Corporate Governance. 47
Item 11. Executive Compensation. 47
Item 14. Principal Accounting Fees and Services. 48
Item 15. Exhibits, Financial Statement Schedules. 49
Signatures 51
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 2021 refers to the fiscal year ended July 31, 2021).
Item
1. Business.
OVERVIEW
IDT
is a global provider of financial technology, or fintech, cloud communications and traditional communications services. Our businesses
often leverage common strategic assets to serve differentiated markets with innovative offerings.
Our
consumer businesses make it easier for families to connect, support and share across international borders. We also enable businesses
to transact and communicate with their customers with enhanced intelligence and insight.
Our
businesses include:
■ Fintech:
■ Cloud Communications:
■ Traditional Communications:
SEGMENT
REPORTING
As
of August 1, 2020, we revised our reportable business segments to reflect the growth of our fintech and cloud communications businesses
and their increased contributions to our consolidated results. We now have three reportable business segments: (1) Fintech; (2) net2phone-UCaaS
(Unified Communications as a Service); and (3) Traditional Communications. Comparative segment information has been reclassified and
restated in all periods to conform to the current period presentation.
The
Fintech segment, which represented 5% and 4% of our total revenues in fiscal 2021 and fiscal 2020, respectively, comprises NRS and BOSS
Revolution Money Transfer. NRS and BOSS Revolution Money Transfer were previously included in our Telecom & Payment Services segment.
The
net2phone-UCaaS segment, which represented 3% and 2% of our total revenues in fiscal 2021 and fiscal 2020, respectively, comprises net2phone’s
cloud communications offerings, which were previously included in our net2phone segment.
The
Traditional Communications segment, which represented 92% and 93% of our total revenues in fiscal 2021 and fiscal 2020, respectively,
includes Mobile Top-Up, BOSS Revolution Calling, and Carrier Services as well as smaller communications and payments offerings, some
of which are in harvest mode, and certain early-stage business initiatives. Most of the Traditional Communications segment was previously
included in our Telecom & Payment Services segment.
Financial
information by segment is presented in Note 2 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.
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.
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.
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 $220.0 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 NYSE American with the ticker symbol “IDW”.
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”.
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 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.
2020
– net2phone introduces its Huddle video conferencing solution and integration with Microsoft Teams.
2021
– net2phone launches integrations with Microsoft Teams, Salesforce and Zapier among others, and HIPAA compatible solutions for
healthcare providers.
OUR
STRATEGY
We
believe that we have been effective at value creation during the more than 30 years since our founding. We have incubated promising early-stage,
high-growth businesses with investment capital provided by our more mature, cash-generating businesses. As these growth businesses scale,
we have frequently monetized them through sales or spin-offs to our shareholders.
To
date, we have spun off five publicly traded companies, one of which was subsequently acquired:
Today,
we are comprised of several high-growth, high-margin, tech-centric businesses as well as more mature businesses. Our businesses derive
their competitive advantages leveraging one or more of our strategic assets including:
■ The BOSS Revolution, net2phone and NRS brands;
■ Our technology, global infrastructure and high-capacity transaction platforms;
■ Extensive VoIP and cloud services expertise; and
■ Our staff of more than 1,600 working in over 20 countries on four continents.
Our
high-margin, high-growth businesses include:
Throughout
the development of these three businesses, growth capital has been provided by the cash flows generated by our more mature traditional
communications offerings. Consequently, we did not have to utilize debt financing nor dilutive capital raises to fund the growth of these
initiatives.
Our
mature, traditional communications offerings include:
■ Mobile Top-Up;
■ BOSS Revolution Calling; and
■ Carrier Services.
Our
traditional communications offerings participate wholly or partially in the paid minute voice communications market. This market is subject
to intense revenue and margin pressure as consumers migrate to free over-the-top voice and messaging services as well as flat-rate international
long-distance plans. However, we continually innovate and deploy new features and enhancements to generate revenue and reduce overhead
and operating expenditures for each of these offerings. Most notably, our Mobile Top-Up offerings have defied market trends to expand
significantly in recent years. In addition, BOSS Revolution Calling’s and Mobile Top-Up’s margin contributions have both
benefited from a gradual rotation to digital channels with higher per-unit margins. These trends and cost saving efforts have, in recent
quarters, more than offset the revenue and margin contribution pressures of the paid minute voice communications market.
The
increasing revenue and gross margin contributions from our high-margin growth businesses in combination with our efforts to maximize
the cash generation of our lower margin, more mature offerings have enabled us to improve our consolidated bottom-line performance in
recent quarters. We expect that this rotation toward our higher margin offerings will continue and help to drive increases in our net
margins.
In
fiscal 2021, we announced that our Board of Directors had directed us to prepare for the potential spin-off of our net2phone cloud communications
business. Management subsequently has stated that it expects the preparations will be complete by the end of calendar year 2021 or shortly
thereafter, although there is no assurance that this spin-off will be completed on this schedule or at all.
BUSINESS
DESCRIPTION
Fintech
Our
Fintech segment contributed 5% and 4% of our total revenues in fiscal 2021 and fiscal 2020, respectively, and is comprised of:
During
fiscal 2021, our Fintech segment generated $74.3 million in revenues and a loss from operations of $1.5 million, as compared with revenues
of $59.9 million and income from operations of $3.4 million in fiscal 2020.
NRS
NRS’
revenues were $24.7 million in fiscal 2021, a 107% increase from fiscal 2020.
NRS
operates a network of POS terminals at independent retailers throughout the United States. The NRS solution includes hardware and software
components that are specifically integrated to enable these retailers to compete more effectively against typically larger 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’ POS 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.
NRS
continues to increase the number of POS terminals active in its network. As of July 31, 2021, the
NRS POS network included more than 14,000 terminals, an increase from 10,000 a year earlier.
NRS’ POS terminal sales and marketing is targeted, in part, to our nationwide network of BOSS Revolution retailers. NRS
also has 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.
We
believe that NRS’ competitive advantages include:
■ For NRS PAY, continued conversion of NRS terminal customers.
NRS’
growth strategy includes:
■ Conversion of current BOSS Revolution retailers to NRS POS and NRS PAY;
■ Expansion into new retail markets;
■ New POS features and functionality;
■ Further integration with programmatic advertisers;
■ Expanding NRS’ internal advertising sales force
■ Creation of a consumer app; and
■ Adding provisioning and supply capabilities to NRS’ salesforce.
Competition
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 believe that these competitors do not have NRS’
focus and marketing reach into these independent stores, often in immigrant communities, 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 revenues were $49.6 million in fiscal 2021, an increase of 3% from fiscal 2020.
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 our customers in the United States to remit money to third parties in destinations worldwide.
The service is offered directly to consumers via our digital channel including the BOSS Revolution Money app and the BOSS Revolution
consumer website (www.bossrevolution.com) and through our retail channel comprising licensed BOSS Revolution authorized money transfer
agents nationwide.
BOSS
Revolution Money Transfer’s digital channel is its largest and fastest growing digital channel. During fiscal 2021, over three-quarters
of BOSS Revolution Money Transfer’s transactions originated on our digital channels, predominantly in the BOSS Revolution Money
app. The Money app enables customers with a debit or credit card to send money transfers easily and securely directly from their iOS
or Android device. In addition, we have recently added the Money Transfer service within our BOSS Revolution Calling app.
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, to both our direct-to-consumer and retail channels.
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 regulatory
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.
BOSS
Revolution Money Transfer’s payment network now includes 306,000 payout locations in 37 countries. 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.
Competitive
strengths
BOSS
Revolution Money Transfer competes in the international money remittance space with both ‘brick and mortar’ services which
operate primarily in retail locations though owned stores or authorized agents and a growing number of digital-only platforms. Most retailer-based
originators of money transfer have now developed digital capabilities as well. Publicly traded companies in this category include Western
Union, International Money Express, Inc (Intermex), Ria, a subsidiary of Euronet Worldwide, and MoneyGram International, Inc. Money remittance
providers that compete wholly or primarily through digital channels include Xoom (a subsidiary of PayPal), WorldRemit, Remitly, TransferWise
and many others.
We
believe that BOSS Revolution Money Transfer’s competitive strengths include:
■ Its comprehensive compliance processes and procedures.
■ Its experienced management team.
BOSS
Revolution Money Transfer’s growth strategy includes:
■ Expansion of its payout network;
■ Continued enhancement to its retailer portal;
■ Increase the number of its retail agents; and
■ Addition of new services and offerings.
Competition
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,
Wise, Remitly, and World-Remit that are disrupting the retailer-based money transfer market. We continue to compete successfully in part
by migrating customers from our other BOSS Revolution offerings to BOSS Revolution 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.
net2phone-UCaaS
net2phone-UCaaS’
revenues were $43.9 million in fiscal 2021 compared to $31.8 million in fiscal 2020. net2phone-UCaaS’ loss from operations was
$14.3 million in fiscal 2021 compared to a loss from operations of $15.1 million in fiscal 2020.
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.
net2phone
enables its customers to transform their communications by leveraging its cloud platform to provide solutions that enable more intelligent,
flexible and adaptive communications. net2phone’s flagship unified communications as a service utilizes its cloud platform to provide
conversational continuity across channels from any connected device - tethered or mobile – and to measure, manage and analyze those
communications for enhanced insight and productivity.
net2phone’s
offerings include:
net2phone-UCaaS
draws its U.S. and international customers from a range of industries including professional offices, hospitality, construction, insurance,
real estate, retail, technology, and others. From an acquisition perspective, net2phone-UCaaS leverages the 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, Latin America and Spain. net2phone Canada historically utilized a direct-to-consumer/business channel model. In fiscal 2020,
net2phone Canada launched its channel partner program, leveraging net2phone-UCaaS’ U.S. channel relationships and experience. In
fiscal 2021, net2phone-UCaaS introduced a direct to business strategy in the United States and several of its other markets.
net2phone-UCaaS’
value proposition for its channel partners includes streamlined offers with both bundled and unbundled options, extensive customization
capabilities, frictionless and rapid quote generation, and competitive compensation – backed by net2phone’s dedicated channel
team. For end users, net2phone-UCaaS’ solution typically replaces on-premise PBX systems. Key differentiators typically include
net2phone-UCaaS ‘advanced feature sets, white glove customer service, integrations with third-party software and deep localization.
In each of net2phone-UCaaS’ key markets, its global infrastructure and locally based sales and customer support teams enable clients
to retain the look and feel of a localized customer and user experiences with local phone numbers, porting, native language support,
and in-country sales teams.
net2phone-UCaaS’
marketing to channel partners and end users includes search engine marketing, search engine optimization, third-party lead generation
platforms, social media marketing, and other forms of demand generation. net2phone-UCaaS’ indirect marketing funnels through its
network of partners, master agencies, and affiliates and includes tradeshows and local events, support for digital marketing and other
forms of demand generation.
net2phone-UCaaS
differentiates its position in the marketplace by leveraging its international assets which enables net2phone-UCaaS to enter and serve
international markets in North America, Latin America and Europe. Secondly, by owning and managing its proprietary platform, net2phone-UCaaS
is able to release new services and applications with an agile frequency and pace.
net2phone-UCaaS’
growth strategy includes:
Competition
Major
competitors to net2phone-UCaaS’ offerings include other UCaaS providers such as RingCentral, 8x8, and Vonage, as well as numerous
privately held companies such as Nextiva. Many of these companies 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 or verticals. These competitors’ offerings typically
also support integration of their services with other well-known, third-party CRM vendors as well as with various Google and Microsoft
applications.
Traditional
Communications
Our
Traditional Communications segment, which represented 92% and 93% of our total revenues in fiscal 2021 and fiscal 2020, respectively,
includes:
During
fiscal 2021, Traditional Communications generated $1,329 million in revenues and income from operations of $80.0 million, as compared
with revenues of $1,254 million and income from operations of $38.9 million in fiscal 2020.
Mobile
Top-Up
Mobile
Top-Up’s revenues were $461.6 million in fiscal 2021 compared to $334.4 million in fiscal 2020 (34.7% and 26.7% of Traditional
Communications’ revenues in fiscal 2021 and fiscal 2020, respectively).
Mobile
Top-Up enables 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 leverages
our platform capabilities, our distribution reach into foreign-born communities and our relationships with mobile operators around the
world.
IMTU
and DMTU 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 is 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 for approximately 155 different
carriers in 95 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.
We
plan to grow Mobile Top-Up via continued growth in the United States and worldwide, expansion into the wholesale market segment and the
addition of new payment products.
Competition
The
major competitors to Mobile Top-Up include:
We
believe that the competitive advantages of Mobile Top-Up are:
BOSS
Revolution Calling
BOSS
Revolution Calling’s revenues were $455.2 million in fiscal 2021 compared to $468.3 million in fiscal 2020 (34.3% and 37.3% of
Traditional Communications’ revenues in fiscal 2021 and fiscal 2020, respectively).
BOSS
Revolution Calling 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 includes 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, 2021,
approximately 2.8 million customers per month.
BOSS
Revolution Calling is offered both through our extensive national network of BOSS Revolution retailers and through our digital channel
- the BOSS Revolution Calling app (for iOS and Android) and website.
The
majority of our customers purchase BOSS Revolution Calling through our nationwide network of BOSS Revolution retailers. At July 31, 2021,
approximately 26,000 retailers per month utilized 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 consistently. At July 31, 2021, approximately 1.5 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 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 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.
Competition
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 WhatsApp, Viber, Skype, and many others 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.
Many
mobile 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 various operators and service providers 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
Carrier
Services’ revenues were $361.0 million in fiscal 2021 compared to $394.3 million in fiscal 2020, contributing 27.2% and 31.4% of
Traditional Communications’ revenues in fiscal 2021 and fiscal 2020, respectively.
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
telecom operator 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. Carrier Services are marketed and sold through
our internal account management team and the IDT Express digital portal.
Traditional
Communications terminated 15.1 billion minutes in fiscal 2021, as compared to 19.4 billion minutes in fiscal 2020. Carrier
Services accounted for 10.5 billion minutes and 14.4 billion minutes of the total Traditional Communications’ minutes in fiscal
2021 and fiscal 2020, 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, 2021, Carrier Services had more than
1,900 customers and had more than 325 carrier relationships globally.
Carrier
Services’ revenues are 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 always available. 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 communications globally continues to transition away from international
voice calling to video conferencing and other collaboration platforms, low-cost or free messaging services, 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.
Competition
The
wholesale carrier industry has numerous entities competing for the same customers, primarily based on price and quality of service.
Carrier
Services participates 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 Carrier Services derives a competitive advantage from several inter-related factors:
■ our professional and experienced account management; and
We
believe that these factors provide Carrier Services with a competitive advantage over some participants on certain routes.