Item 1A. Risk Factors. 18
Item 1B. Unresolved Staff Comments. 41
Item 2. Properties. 41
Item 3. Legal Proceedings. 41
Item 4. Mine Safety Disclosures. 41
Item 6. [Reserved] 42
Item 7A. Quantitative and Qualitative Disclosures about Market Risks. 57
Item 8. Financial Statements and Supplementary Data. 57
Item 9A. Controls and Procedures. 57
Item 9B. Other Information. 59
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 59
Part III 60
Item 10. Directors, Executive Officers and Corporate Governance. 60
Item 11. Executive Compensation. 60
Item 14. Principal Accountant Fees and Services. 60
Item 15. Exhibit and Financial Statement Schedules. 61
Signatures 63
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 2022 refers to the fiscal year ended July 31, 2022).
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
We
have three reportable business segments: (1) Fintech; (2) net2phone (formerly net2phone-UCaaS); and (3) Traditional Communications. In
fiscal 2022, a line of business was reclassified to the net2phone segment from the Traditional Communications segment. Comparative
segment information has been reclassified and restated in all periods to conform to the current period presentation.
The
Fintech segment, which represented 8.0% and 5.1% of our total revenues in fiscal 2022 and fiscal 2021, respectively, comprises our NRS
and BOSS Money businesses.
The
net2phone segment, which represented 4.3% and 3.1% of our total revenues in fiscal 2022 and fiscal 2021, respectively, comprises net2phone’s
cloud communications offerings including its unified communications as a service, or UCaaS, and contact center as a service, or CCaaS,
offerings.
The
Traditional Communications segment, which represented 87.7% and 91.8% of our total revenues in fiscal 2022 and fiscal 2021, respectively,
includes Mobile Top-Up, BOSS Revolution Calling, and IDT Global, as well as other small businesses and offerings including early-stage
business initiatives and mature businesses in harvest mode.
Financial
information by segment is presented in Note 2 to our Consolidated Financial Statements in Item 8 to Part II 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, launches International Discount Telephone to provide international call re-origination services.
1995
– We begin 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 Voice over
Internet Protocol, or 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 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 our BOSS Revolution Calling app for Android and iOS.
–
We launch our BOSS Money international remittance service.
2014
– We sell our stake in Fabrix Systems, 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 our BOSS Money app for Android and iOS.
2018
– We spin-off our interest in our Rafael Holdings, Inc. subsidiary to our stockholders. Rafael Holdings’ stock is listed
on the NYSE with the ticker symbol “RFL”.
2019
– NRS launches NRS PAY, enabling retailers to accept credit cards and other forms of digital payment with an affordable, easily
understood rate structure and no hidden fees.
2020
– net2phone introduces its Huddle video conferencing solution and integration with Microsoft Teams.
–
IDT acquires a majority stake in Sochitel UK Ltd., or Sochitel, a global hub and digital distribution platform for mobile top-up, electronic
vouchers, and other value transfer services.
2021
– net2phone launches integrations with Salesforce and Zapier among others, and HIPAA compatible solutions for healthcare providers.
–
BOSS Money is integrated into the BOSS Revolution Calling app.
2022
– net2phone acquires Integra CCS, a CCaaS provider operating in the Americas and Europe.
–
IDT acquires Leaf Global Fintech, an award-winning provider of digital wallet services in emerging markets serving unbanked customers
in Rwanda, Uganda, and Kenya.
–
NRS launches its eWIC service, enabling NRS retailers to accept electronic benefits vouchers from the beneficiaries of the popular Supplemental
Nutrition Program for Women, Infants and Children, or WIC.
OUR
STRATEGY
Since
our inception more than 30 years ago, we have generated strong returns for our stockholders by incubating early-stage, high-growth businesses
with investment capital provided by our more mature, cash-generating businesses. As these growth businesses scaled, we monetized many
of them through sales or spin-offs to our stockholders.
To
date, we have spun off five publicly traded companies, one of which was subsequently acquired:
We
are comprised of several high-growth, high-margin, tech-centric businesses as well as more mature, cash-generating businesses. Our businesses
derive their competitive advantages leveraging one or more of our strategic assets including:
■ The NRS, net2phone, BOSS Revolution, BOSS Money and IDT Global 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:
The
development of these three businesses has been financed with growth capital from the cash flows generated by our more mature traditional
communications offerings. Consequently, we have not needed to rely upon debt financing nor dilutive capital raises to invest in these
initiatives.
The
key businesses in our mature, traditional communications offerings are:
■ Mobile Top-Up;
■ BOSS Revolution Calling; and
■ IDT Global.
These
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 continue to migrate to free over-the-top voice and messaging services and to flat-rate
international long-distance plans. We have successfully countered the bottom-line impacts of these trends thus far by continually innovating
and deploying new features and enhancements to generate revenue and reduce overhead and operating expenditures for each of these offerings.
For instance, our margin contributions for BOSS Revolution Calling and Mobile Top-Up have benefited from a gradual rotation to digital
channels with higher per-unit margins. These trends and cost saving efforts have significantly offset the decreases in the paid minute
voice revenue.
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 to drive increases in our operating margins.
BUSINESS
DESCRIPTION
Fintech
Our
Fintech segment contributed 8.0% and 5.1% of our total revenues in fiscal 2022 and fiscal 2021, respectively, and is comprised of:
During
fiscal 2022, our Fintech segment generated $108.8 million in revenues and income from operations of $5.3 million, as compared with revenues
of $74.3 million and a loss from operations of $1.5 million in fiscal 2021.
NRS
NRS’
revenues were $51.3 million in fiscal 2022, a 107% increase from fiscal 2021.
NRS
operates a network of POS terminals at independent retailers including convenience, liquor and tobacco stores throughout the United States.
The NRS solution includes integrated hardware and software tools that enable these retailers to operate more efficiently and compete
more effectively against 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 to retailers as a service and provides operational
tools including inventory management, sales tracking, price book management and other useful features. NRS technology teams in the United
States and Israel continuously enhance the software and develop new features to better serve existing customers and facilitate expansion
into additional retail market segments.
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, 2022, the
NRS POS network included more than 19,000 terminals, an increase from 14,000 a year earlier.
NRS’ POS terminal sales and marketing efforts are targeted, in part, to our nationwide network of BOSS Revolution retailers.
NRS also markets and sells to retailers outside the BOSS Revolution network, including direct sales and through 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 vast majority of revenue is generated by recurring
services including:
NRS
also supports our BOSS Revolution communications and payment offerings – BOSS Revolution Calling, BOSS Money remittances, 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:
■ Through IDT, relationships with over 35,000 retailers nationwide;
■ 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 verticals;
■ Development and deployments of new POS features and functionalities;
■ Further integrations with programmatic advertisers;
■ Creation of a consumer app for remote ordering and delivery.
Competition
NRS
competes against several nationwide POS companies that primarily serve other retail store segments, but also serve NRS’ target
market of independent convenience, liquor, and tobacco stores in the United States. These competitors include, among others, Square,
Clover, and NCR.
We
believe that NRS’ competitive advantages include:
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
Money
BOSS
Money revenues were $57.5 million in fiscal 2022, an increase of 16% from fiscal 2021.
International
remittances are a primary economic activity for the tens of millions of first and second-generation immigrants in the United States.
According to the World Bank, total remittances from the United States topped $74 billion in 2021.
BOSS
Money enables customers in the United States to conveniently and affordably send money to third parties around the world. At July 31,
2022, BOSS Money provided its remittance service from the United States to 50 countries through 1,300 payer entities. Its payout network
included over 316,000 cash payout locations worldwide in addition to direct deposit, mobile money and home delivery payout options.
BOSS
Money is offered directly to consumers via our digital channels including the BOSS Money app, the BOSS Calling app, and the BOSS Money
consumer website (www.bossmoney.com). Our retail channel comprises licensed and authorized BOSS Money agents nationwide.
During
fiscal 2022, over three-quarters of BOSS Money’s transactions originated on our digital channels, predominantly in the BOSS Money
app. The BOSS Money app enables customers with a debit or credit card to send money easily and securely directly from an iOS or Android
device.
The
BOSS Money retail network affords unbanked and underbanked customers the ability to initiate transactions with cash or a credit or debit
card. We continue to build our retail origination network by using our internal sales force to recruit new BOSS Money retailers, primarily
focusing on retailers that already provision BOSS Revolution Calling and Mobile Top-Up. In order to provision our service, BOSS Money
retailers must meet certain stringent financial and other regulatory qualifications. We also continue to enhance the BOSS Money retailer
portal and platform to make the transaction more convenient for retailers, many of whom have access to multiple remittance services.
We
continue to expand our BOSS Money customer base by focusing our marketing efforts on converting the large BOSS Revolution Calling and
Mobile Top-Up customer bases, as well as by targeting new customers directly, primarily through attractive fee and foreign exchange rate
offers, through both our digital and retail channels.
BOSS
Money generates revenues from a per-transaction fee charged to the customer and from foreign exchange differentials. Our transaction
costs include commissions paid when the transaction is initiated by a retail agent, payment to the international disbursing agent, banking,
compliance, foreign currency exchange costs and, for digital transfers, credit and debit card processing fees.
Competition
and Competitive strengths
BOSS
Money competes in the international money remittance space with both ‘brick and mortar’ services which operate primarily
in retail locations through stores or authorized agents and a growing number of digital-only platforms. Most retailer-based originators
of money transfers 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 Money’s competitive strengths include:
■ Our comprehensive compliance processes and procedures; and
■ Our experienced management team.
BOSS
Money’s growth strategy includes:
■ Continued enhancement of our BOSS Money retailer portal;
■ Increasing the number of BOSS Money retail agents; and
■ Addition of new features and offerings.
We
continue to compete successfully in part by migrating customers from our other BOSS Revolution offerings to BOSS Money leveraging our
highly regarded BOSS Revolution brand, insights into our customers, and 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
net2phone’s
revenues were $58.2 million in fiscal 2022 compared to $44.5 million in fiscal 2021. net2phone’s loss from operations was $11.1
million in fiscal 2022 compared to a loss from operations of $15.5 million in fiscal 2021.
net2phone
launched its UCaaS offering in 2015, leveraging our deep expertise in VoIP communications, established technology team, and global telephony
network. 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 UCaaS 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
operates primarily in the United States, Canada, Latin America, and Spain. net2phone’s customers are from a range of industries
including professional offices, hospitality, construction, insurance, real estate, retail, technology, and others.
net2phone
employs a channel-partner-first strategy in most of its markets whereby it distributes predominantly through its master agent, telecom
agent, Managed Service Provider, and Value-Added Reseller partners. net2phone believes this strategy broadens its sales reach considerably
to customers of all sizes, especially in its target market of small and midsize businesses, which rely heavily on channel partners to
address their IT needs and are not the focus of many of its competitors. Currently, net2phone partners with over 2,500 active channel
partners. net2phone is also investing in its direct-to-business channel, which is in the early stages of development across most markets
and is expected to drive additional growth.
net2phone’s
go-to-market strategy for both channel partners and direct sales focuses on owning its business customers, with customers billed and
supported directly by it. net2phone’s sales approach is uniquely tailored to each geographic market. net2phone delivers differentiated,
white-glove local support for channel partners and end users along with customizable packages and a partner-ready portal for seamless
onboarding and management. net2phone’s channel partners and business customers choose its solutions as a result of its intuitive
products, reliability, track-record of innovation, and accessibility.
net2phone’s
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’s solution typically replaces on-premise PBX systems. Key differentiators typically include net2phone’s
advanced feature sets, white glove customer service, integrations with third-party software and deep localization. net2phone’s
global infrastructure and locally based sales and customer support teams enable clients to retain the look and feel of localized customer
and user experiences with local phone numbers, porting, native language support, and in-country sales teams.
net2phone’s
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’s 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
primarily sells its solutions through the partner channel, overseen by field-based channel sales managers employed by us. net2phone tracks
its acquisition costs closely across all channels to ensure it is acquiring customers in a cost-efficient manner and consistent with
its targets for return on investment.
net2phone
differentiates its position in the marketplace by leveraging its international assets which enables net2phone to enter and serve international
markets in North America, Latin America and Europe. Secondly, by owning and managing its proprietary platform, net2phone is able to release
new services and applications with an agile frequency and pace.
Following
the Integra acquisition, net2phone is integrating a CCaaS marketing plan into some of its core marketing strategies. These include, but
are not limited to, webinars, channel partner events, contact center industry focused events, Search Engine Optimization, or SEO, and
Search Engine Marketing, or SEM, layered with ongoing channel sales training, proof of concepts and demos. As CCaaS sales opportunities
will lead to more enterprise deployments, net2phone plans to implement a strong presales engineering cadence to qualify, ascertain and
identify the key features and functionality that such client sets require.
net2phone
growth strategy includes:
Competitive
strengths
We
believe that net2phone’s competitive strengths include:
Competition
Major
competitors to net2phone’s offerings include other UCaaS providers such as RingCentral, 8x8, Crexendo, Vonage, and 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.
The
CCaaS market is fragmented, highly competitive and evolving rapidly in response to shifting consumer behavior, especially the rapid adoption
of mobile devices and social media. The proliferation of each is driving change in contact center technology, as customers expect seamless
communication across any channel according to their preference and needs. Combined with the disruptive nature of cloud technologies,
this has resulted in competitors from different market and product heritages, varying in size, breadth and scope of products and services
offered. net2phone currently competes with large legacy vendors that offer on-premise contact center systems, such as Avaya and Cisco.
These legacy telephony vendors are increasingly supplementing and replacing their traditional on-premise contact center systems with
competing cloud offerings, through a combination of acquisitions, partnerships and in-house development. Additionally, net2phone competes
with vendors that historically provided other contact center services and technologies and expanded to offer cloud contact center software
such as NICE, Five9, and Genesys. net2phone also faces competition from many smaller contact center service providers such as Talkdesk
and Seranova, as well as vendors offering both unified communications and contact center solutions. In addition, Amazon, and Twilio have
introduced solutions aimed at companies who wish to build their own contact centers with in-house developers. CRM vendors are also increasingly
offering features and functionality that were traditionally provided by contact center service providers. CRM vendors also continue to
partner with contact center service providers to provide integrated solutions and may, in the future, acquire competitive contact center
service providers.
net2phone’s
actual and potential competitors may enjoy competitive advantages over it, including greater name recognition, longer operating histories
and larger marketing budgets, as well as greater financial and/or technical resources. With the introduction of new technologies and
market entrants, net2phone expects competition to continue to intensify in the future. net2phone’s future acquisitions if any,
may subject it to new competitors and cause it to face additional and different competition in the markets served by these businesses.
Traditional
Communications
Our
Traditional Communications segment, which represented 87.7% and 91.8% of our total revenues in fiscal 2022 and fiscal 2021, respectively,
includes:
During
fiscal 2022, Traditional Communications generated $1,197 million in revenues and income from operations of $74.8 million, as compared
with revenues of $1,328 million and income from operations of $81.3 million in fiscal 2021.
Mobile
Top-Up
Mobile
Top-Up’s revenues were $473.2 million in fiscal 2022 compared to $461.6 million in fiscal 2021 (39.5% and 34.8% of Traditional
Communications’ revenues in fiscal 2022 and fiscal 2021, respectively).
Mobile
Top-Up enables customers to transfer airtime and bundles of airtime, messaging, and data to recharge or ‘top-up’ a recipient’s
mobile phone account internationally (International Mobile Top-Up, or IMTU) or domestically (Domestic Mobile Top-Up, or DMTU). We offer
IMTU 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.
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 through the BOSS Revolution brand primarily through three channels:
■ wholesale, in which we provision IMTU offerings for other businesses.
Mobile
Top-Up’s growth drivers include deployment of additional data centric IMTU bundles to meet the demand for data from mobile phone
customers in developing countries worldwide, migrating our current BOSS Revolution Calling and BOSS Money customers to our Mobile Top-Up
offerings, further expansion into the wholesale market and the addition of new products enabling originators to pay for goods and services
on behalf of the Mobile Top-Up recipient.
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 $387.9 million in fiscal 2022 compared to $455.2 million in fiscal 2021 (32.4% and 34.3% of
Traditional Communications’ revenues in fiscal 2022 and fiscal 2021, 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 a 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 served, as of July 31, 2022,
approximately 2.4 million customers per month.
BOSS
Revolution Calling is offered through our digital channels – the BOSS Revolution Calling app and website, and through our extensive
national network of BOSS Revolution retailers.
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. 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, through the BOSS Revolution consumer website (www.bossrevolution.com) or by phone, or with
cash at any BOSS Revolution retailer. 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.
Users
of the BOSS Revolution Calling app constitute the majority of our customers to date. At July 31, 2022, approximately 1.6 million customers
per month utilized the BOSS Revolution Calling app.
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.
At
July 31, 2022, approximately 24,500 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 7,000 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.
The
BOSS Revolution digital retailer portal can be accessed by any broadband enabled device. Through the portal, retailers can access our
platform to create accounts for new customers, add funds to existing customer balances and execute sales transactions. The platform provides
us with a direct, real-time interface with our BOSS Revolution retailers to create 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 adapt 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 retail sales have traditionally been, and continue to be, strongest in the Northeastern United States and
in Florida because of our extensive local distribution network. 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.
Competition
BOSS
Revolution Calling is subject to fierce competition. 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, including 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.
In
addition to these larger competitors, we face significant competition from smaller prepaid calling providers.
From
time-to-time, competitors may offer rates that are substantially below ours, in an apparent attempt 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 WhatsApp, Viber, Skype, and 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 to continue to increase, which will increase substitution for, and pricing pressure on,
our BOSS Revolution Calling and other international prepaid calling offerings. However, free services typically require both the caller
and recipient to have a broadband connection. BOSS Revolution Calling utilizes telephone networks to enable voice communications even
when neither party has broadband connectivity.
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.
IDT
Global
IDT
Global’s revenues were $292.4 million in fiscal 2022 compared to $361.0 million in fiscal 2021, contributing 24.4% and 27.2% of
Traditional Communications’ revenues in fiscal 2022 and fiscal 2021, respectively.
IDT
Global is one of the largest wholesale carriers of international long-distance minutes in the world.
IDT
Global’s 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. IDT Global’s 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.
IDT
Global 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 our global network
of interconnections and relationships with other telecom operators around the globe. IDT Global’s services are marketed and sold
through our internal account management team and the IDT Express digital portal. IDT Express focuses on delivering wholesale voice and
direct inward dialing, or DID, services to small and medium size businesses domestically and internationally.
Traditional
Communications terminated 11.3 billion minutes in fiscal 2022, as compared to 15.1 billion minutes in fiscal 2021. IDT Global accounted
for 7.7 billion minutes and 10.5 billion minutes of the total Traditional Communications’ minutes in fiscal 2022 and fiscal 2021,
respectively.
IDT
Global 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, 2022, IDT Global had more than 1,800
customers and had more than 325 carrier relationships globally.
IDT
Global’s 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 IDT Global’s prepaid customers connect via our IDT
Express portal. IDT Express offers the convenience of a mobile self-service portal paired with dedicated account managers backed by customer
support. Prepaid customers are typically smaller telecommunication companies as well as independent call aggregators.
IDT
Global also offers outsourcing services to help fixed and mobile telephony operators enhance the profitability and value of their international
voice operations. IDT Global 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, IDT Global collaborates with the operators to provide a full range of international long-distance services to their respective
customers in-country and overseas.
IDT
Global 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.
IDT
Global 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 IDT Global derives a competitive advantage from several inter-related factors:
■ our professional and experienced account management team; and
We
believe that these factors provide IDT Global with a competitive advantage over some participants on certain routes.
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 and Asia. We
interconnect with carriers all over the world, including cellular, landline, and satellite 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 and Guatemala. We also use 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 platforms 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 and Minsk offices, as well as remotely distributed globally. 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, 2022, our technology organization
has improved our aggregate service uptime from approximately 99.92% in fiscal 2021 to approximately 99.975% for fiscal 2022. The defect
escape ratio, a measure of quality engineering for our flagship BOSS Revolution brand, was 3% in fiscal 2022, meaning more than 97% of
product defects were detected and fixed before being released to our customers.
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