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, 2023.
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 $0.01 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. ☒
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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, 2023 (the last business day of the registrant’s most recently completed second fiscal quarter) of the Class B common
stock of $29.39 per share, as reported on the New York Stock Exchange, was approximately $599.4 million.
As
of October 11, 2023, the registrant had outstanding 23,587,244 shares of Class B common stock and 1,574,326 shares of Class A common
stock. Excluded from these numbers are 4,277,772 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 13, 2023, 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. 19
Item 1B. Unresolved Staff Comments. 41
Item 2. Properties. 41
Item 3. Legal Proceedings. 41
Item 4. Mine Safety Disclosures. 41
Item 6. [Reserved] 44
Item 7A. Quantitative and Qualitative Disclosures about Market Risks. 58
Item 8. Financial Statements and Supplementary Data. 59
Item 9A. Controls and Procedures. 59
Item 9B. Other Information. 60
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 60
Part III 61
Item 10. Directors, Executive Officers and Corporate Governance. 61
Item 11. Executive Compensation. 61
Item 14. Principal Accountant Fees and Services. 61
Item 15. Exhibit and Financial Statement Schedules. 62
Signatures 64
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 2023 refers to the fiscal year ended July 31, 2023).
Item
1. Business.
OVERVIEW
IDT
is a provider of point-of-sale terminal-based solutions, international money remittance and other financial technology, or fintech businesses,
cloud communications and traditional communications services. Our businesses 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.
IDT’s
key businesses are:
IDT
also operates other, small businesses and offerings including early-stage business initiatives and mature businesses in harvest mode.
SEGMENT
REPORTING
We
have four reportable business segments: (1) National Retail Solutions, or NRS; (2) Fintech; (3) net2phone; and (4) Traditional Communications.
As
of August 1, 2022, our National Retail Solutions business was reclassified to the NRS segment from the Fintech segment. In addition,
certain lines of business were reclassified to the Fintech 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
NRS segment, which contributed revenue of $77.1 million in fiscal 2023 and $51.3 million in fiscal 2022 (6.2% and 3.8% of our total revenues,
respectively) comprises our NRS business.
The
Fintech segment, which contributed revenue of $86.6 million in fiscal 2023 and $64.6 million in fiscal 2022 (7.0% and 4.7% of our total
revenues, respectively), comprises our BOSS Money remittance business and other, significantly smaller, financial services businesses,
offerings and technologically innovative initiatives.
The
net2phone segment, which contributed revenue of $72.4 million in fiscal 2023 and $58.2 million in fiscal 2022 (5.8% and 4.3% of our total
revenues, respectively), comprises unified communications as a service, or UCaaS, offered under net2phone’s Unite Brand, contact
center as a service, or CCaaS, offered under its uContact brand, and other offerings that leverage the cloud to enable intelligent business
communications.
The
Traditional Communications segment, which contributed revenue of $1,002.7 million in fiscal 2023 and $1,190.0 million in fiscal 2022
(81.0% and 87.2% of our total revenues, respectively) includes IDT Digital Payments, 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 majority 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 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.
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, or Integra, a CCaaS provider operating in the Americas and Europe.
2023
– NRS expands its POS network to Canada, enrolling its first retailers in the Toronto area.
-
IDT Digital Payments launches Zendit, a global prepaid-as-a-service platform.
OUR
STRATEGY
Since
our inception more than 30 years ago, we have generated strong returns for our stockholders by incubating high-growth businesses with
investment capital provided by our more mature, cash-generating businesses. As these growth businesses scaled, we have 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 sold:
Today,
we operate a portfolio of inter-related businesses that we’ve built by leveraging our strategic assets. These assets include:
■ Our technology, global infrastructure and high-capacity transaction platforms;
■ Extensive VoIP and cloud services expertise; and
The
development of our high-margin, high-growth businesses—NRS, net2phone, and BOSS Money—has been, and in some
cases continues to be, financed with growth capital from the cash flows generated by the more mature businesses within our Traditional
Communications segment. Consequently, we have avoided debt financing and dilutive capital raises.
The
key businesses in our Traditional Communications segment are:
■ IDT Digital Payments;
■ BOSS Revolution Calling; and
■ IDT Global.
These
offerings participate wholly or partially in the paid-minute voice communications market. Like other operators in this market, these
businesses, and particularly our BOSS Revolution Calling and IDT Global businesses, are 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 worked to counter the impacts of these trends by continually innovating and deploying new features and enhancements to augment
the contributions of these offerings while reducing their associated overhead and operating expenditures. For instance, BOSS Revolution
Calling and IDT Digital Payments benefited from a gradual rotation to digital channels with higher per-unit margins following the introduction
of our BOSS Revolution Calling and BOSS Money apps. To date, these efforts have significantly offset the bottom-line impacts of the paid-minute
voice market’s decline. Nevertheless, we expect that the cash-flows generated by the BOSS Revolution Calling and IDT Global businesses
will decline appreciably in the coming years as the overall paid communications market continues its decline.
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 years and to return value to stockholders through purchases of our Class B common stock.
BUSINESS
DESCRIPTION
National
Retail Solutions
NRS
generated $77.1 million in revenues and income from operations of $14.4 million in fiscal 2023, as compared with revenues of $51.3 million
and income from operations of $11.2 million in fiscal 2022.
NRS
operates a network of POS terminals at independent retailers including convenience stores, bodegas, and other independent retailers 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 a cash register, barcode scanner, retailer and customer-facing hi-definition screens, a receipt
printer, and a credit card reader. 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 in urban areas.
NRS
continues to increase the number of POS terminals active in its network. As of July 31, 2023, the NRS POS network included approximately
25,700 terminals, an increase from 19,400 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 through direct sales and 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:
In
addition to these recurring sources of revenue, NRS sells its POS terminals to retailers. Terminals are typically offered at a discount
from the full retail price when retailers enroll in NRS PAY.
NRS
also supports our BOSS communications and payment offerings – BOSS Revolution Calling, BOSS Money remittances, and IDT Digital
Payments, all of which can be sold and provisioned by retailers directly from their NRS terminals.
We
believe that NRS’ competitive advantages include:
NRS’
growth strategy includes:
Competition
NRS’
principal competitors in our target market of independent convenience stores, including bodegas, and other small format retailers including
liquor and tobacco stores, are significantly smaller and primarily local or regional. 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.
Nationwide
POS platform service providers, including Square, Toast, Lightspeed, Clover, and NCR, primarily serve retail chains or are focused on
other segments, such as sit-down restaurant chains.
Fintech
Fintech
is comprised of BOSS Money and other, significantly smaller, financial services businesses. Fintech revenues were $86.6 million in fiscal
2023 compared to $64.6 million in fiscal 2022. Fintech’s loss from operations was $2.5 million in fiscal 2023 compared to $6.9
million in fiscal 2022. BOSS Money revenues were $76.9 million in fiscal 2023, an increase of 38.5% from revenues of $55.6 million in
fiscal 2022.
BOSS
Money enables customers in the United States to send money conveniently and affordably to third parties around the world. 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 $79 billion in 2022. At July 31, 2023, BOSS Money provided
its remittance service from the United States to 47 countries through approximately 1,100 payer entities. Its payout network included
over 237,000 cash payout locations worldwide in addition to bank deposits, mobile money wallets, credit to debit cards, and home delivery
payout options.
BOSS
Money is offered directly to consumers via our digital channels including the BOSS Money app, the BOSS Revolution Calling app, and the
BOSS Money consumer website. Our retail channel comprises licensed and authorized BOSS Money agents nationwide.
During
fiscal 2023, approximately 80% 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 as well as with a
debit or credit 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 IDT Digital Payments. In order to provide
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, the majority of whom host multiple
remittance providers.
We
continue to expand our BOSS Money customer base at rates well above the domestic remittance industry’s average by focusing our
marketing efforts on converting the large BOSS Revolution customer base, 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.
BOSS
Money’s gross margins are typically higher on remittances initiated through our digital channels compared to retail channel transactions,
as we pay retail agents transaction-based commissions on the latter.
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 with digital-only platforms. Most retailer-based originators of money transfers
have now developed digital capabilities as well. Significant participants 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, Sendwave, and TransferWise.
We
believe that BOSS Money’s competitive strengths include:
■ Our internal sales force, which serves our 30,000 BOSS Money retailers;
■ Our comprehensive compliance processes and procedures; and
■ Our experienced management team.
BOSS
Money’s growth strategy includes:
■ Further enhancement of our BOSS Money app and 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 offerings to BOSS Money leveraging our highly regarded
BOSS brand, insights into our customers, and cross-marketing capabilities. We compete for customers outside the BOSS ecosystem primarily
based on brand reputation, low fees, and competitive foreign exchange rates.
net2phone
net2phone’s
revenues were $72.4 million in fiscal 2023 compared to $58.2 million in fiscal 2022. net2phone’s loss from operations was $2.8
million in fiscal 2023 compared to $11.1 million in fiscal 2022.
net2phone
launched its UCaaS offering in 2015, leveraging our 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
offerings include:
net2phone
operates in the United States, Canada, Latin America, the Caribbean, and Spain. Sales efforts are targeted at mid-market scale businesses,
with 50 to 1000 seats.
net2phone
employs a channel-partner go-to-market strategy in its markets, except in Canada. In these markets, distribution is through master agents,
telecom agents, managed service providers, and value-added reseller partners. net2phone’s channel-centric approach enables it to
efficiently reach its extensive target market of midsize businesses, which rely heavily on channel partners to address their IT needs.
Currently, net2phone partners with over 2,000 active channel partners. net2phone’s partner channel is overseen by field-based channel
sales managers employed by net2phone.
net2phone
also continues to expand its direct-to-business channel in each of its markets.
net2phone’s
channel partners and business customers choose its solutions because of its intuitive products, reliability, track-record of innovation,
and accessibility.
net2phone’s
go-to-market strategy for both channel partners and direct sales is uniquely tailored to each geographic market. net2phone delivers differentiated,
local support for channel partners and end users along with customizable packages and a partner-ready portal for seamless onboarding
and management. In addition, net2phone bills and supports its customers directly.
net2phone’s
value proposition for its channel partners includes streamlined services bundled with and without IP phones, extensive customization
capabilities, frictionless and rapid quote generation, and competitive compensation – backed by net2phone’s dedicated channel
team.
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, locally based sales and customer support teams and local phone
numbers, porting, and native language support, all enable net2phone clients to retain the look and feel of localized customer and user
experiences.
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
tracks its acquisition costs closely across both channels to ensure it is acquiring customers in a cost-efficient manner and consistent
with its targets for return on investment.
net2phone’s
CCaaS offering is integrated into its core marketing strategies. These include, but are not limited to, webinars, channel partner events,
contact center industry-focused events, search engine optimization, and search engine marketing, 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
net2phone’s
most significant competitors in the UCaaS space include 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 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 mobile devices and social media 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
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. 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 generated $1,002.7 million in revenues and income from operations of $61.3 million in fiscal 2023,
as compared with revenues of $1,190.0 million and income from operations of $75.8 million in fiscal 2022.
Traditional
Communications comprises the following businesses:
IDT
Digital Payments
IDT
Digital Payments’ revenues were $417.1 million in fiscal 2023 compared to $473.2 million in fiscal 2022 (41.6% and 39.8% of Traditional
Communications’ revenues in fiscal 2023 and fiscal 2022, respectively).
IDT
Digital Payments enables customers to transfer airtime and bundles of airtime, messaging, and data to recharge or ‘top-up’
a recipient’s mobile phone account internationally or domestically. Through its Zendit platform, IDT Digital Payments enables businesses,
entrepreneurs, and developers to offer prepaid digital offerings including mobile airtime top-up, mobile data bundles, digital gift cards,
and prepaid utility payments. The substantial majority of IDT Digital Payments’ revenue is from international mobile top-up. IDT
Digital Payments offers mobile top-up for 194 different carriers in 109 countries, primarily in Latin America, the Caribbean and Africa.
IDT
Digital Payments leverages our platform capabilities, our distribution reach into foreign-born communities and our relationships with
mobile operators around the world.
IDT
Digital Payments is sold through the BOSS platform primarily through three channels:
IDT
Digital Payments’ growth drivers include deployment of additional data centric bundles to meet the growing demand for data from
mobile phone customers in developing countries worldwide, cross selling to our current BOSS Revolution Calling and BOSS Money customers,
further expansion into the enterprise and wholesale market as well as other regions, and the addition of new services, including enabling
originators to pay for goods and services on behalf of the recipient. Additionally, we are actively pursuing the growing global digital
gift card market by expanding our digital catalog to include hundreds of brands from around the world.
Competition
IDT
Digital Payments’ major competitors include:
We
believe that IDT Digital Payments’ competitive advantages are:
BOSS
Revolution Calling
BOSS
Revolution Calling’s revenues were $322.1 million in fiscal 2023 compared to $387.9 million in fiscal 2022 (32.1% and 32.6% of
Traditional Communications’ revenues in fiscal 2023 and fiscal 2022, 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, 2023,
approximately 2.1 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, 2023, approximately 1.5 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, 2023, approximately 23,500 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 5,000 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 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, Messenger, FaceTime, 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 $230.3 million in fiscal 2023 compared to $292.4 million in fiscal 2022, contributing 23.0% and 24.6% of
Traditional Communications’ revenues in fiscal 2023 and fiscal 2022, 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
global telecom operator. 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. 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 9.3 billion minutes in fiscal 2023, as compared to 11.3 billion minutes in fiscal 2022. IDT Global accounted
for 6.3 billion minutes and 7.7 billion minutes of the total Traditional Communications’ minutes in fiscal 2023 and fiscal 2022,
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 the 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,