Item 1A. Risk Factors. 19
Item 1B. Unresolved Staff Comments. 41
Item 1C. Cybersecurity. 41
Item 2. Properties. 41
Item 3. Legal Proceedings. 42
Item 4. Mine Safety Disclosures. 42
Item 6. [Reserved] 44
Item 7A. Quantitative and Qualitative Disclosures about Market Risks. 57
Item 8. Financial Statements and Supplementary Data. 58
Item 9A. Controls and Procedures. 58
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 2024 refers to the fiscal year ended July 31, 2024).
Item
1. Business.
OVERVIEW
IDT
is a provider of point-of-sale terminal-based solutions, international money remittances and other financial technology, or fintech,
offerings, cloud communications and traditional communications services. Our businesses leverage one or more of our core strategic assets
to serve differentiated markets with innovative offerings.
IDT’s
key businesses are:
IDT
also operates other, smaller 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.
The
NRS segment, which contributed revenue of $103.1 million in fiscal 2024 and $77.1 million in fiscal 2023 (8.6% and 6.2% of our total
revenues, respectively) comprises our NRS business.
The
Fintech segment, which contributed revenue of $120.7 million in fiscal 2024 and $86.6 million in fiscal 2023 (10.0% and 7.0% of our total
revenues, respectively), comprises our BOSS Money remittance business and other, significantly smaller, financial services businesses.
The
net2phone segment, which contributed revenue of $82.3 million in fiscal 2024 and $72.4 million in fiscal 2023 (6.8% and 5.8% of our total
revenues, respectively), offers unified communications as a service, or UCaaS, and contact center as a service, or CCaaS, and other significantly
smaller offerings that leverage the cloud to enable intelligent business communications.
The
Traditional Communications segment, which contributed revenue of $899.6 million in fiscal 2024 and $1,002.7 million in fiscal 2023 (74.6%
and 81.0% of our total revenues, respectively) includes IDT Digital Payments, BOSS Revolution, 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, 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 was subsequently renamed IDW Media Holdings,
Inc.
2011
– We spin-off our Genie Energy Ltd. subsidiary to our stockholders. 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 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 Zedge subsidiary to our stockholders. 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 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.
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.
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 Ontario.
-
IDT Digital Payments launches Zendit, a global prepaid-as-a-service platform.
2024
- We initiate payment of a regular quarterly dividend to holders of our Common Stock.
–
BOSS Money begins offering domestic money transfers, enabling both banked and unbanked customers to send money to friends and family
within the United States.
OUR
STRATEGY
We
operate a portfolio of interrelated businesses. Each of the businesses leverages one or more of our core strategic assets – assets
that we have carefully built during the more than thirty years since our inception. They include:
■ Our technology, global infrastructure and high-capacity transaction platforms;
■ Extensive VoIP and cloud services expertise; and
In
recent years, we leveraged these assets to build our three high-margin, growth businesses — NRS, net2phone, and BOSS Money.
Each of these businesses’ development has been principally organic and financed with the cash flows generated by our more mature
businesses including IDT Digital Payments, BOSS Revolution and IDT Global. Consequently, we avoided debt financing and dilutive capital
raises while building an exceptionally strong balance sheet. Today, each of these high-margin growth businesses is cash-flow positive
and positioned to significantly expand its operations in pursuit of significant market opportunities.
Our
IDT Digital Payments business provides prepaid digital offerings, principally mobile top-up, directly to consumers through BOSS’
retail and digital channels. We also sell over 3,500 digital gift cards from around the world, as well as over 2,000 digital data-only
eSIM plans to more than 150 countries. Through its Zendit enterprise platform, IDT Digital Payments enables businesses, entrepreneurs,
and developers to offer over 16,000 prepaid digital offerings to their audiences globally.
Our
BOSS Revolution and IDT Global businesses operate in the paid-minute voice communications market. Like other operators in this market,
these 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. To date, these efforts have significantly offset the bottom-line impacts of these offerings’ revenue
declines. Nevertheless, we expect that the revenues and cash-flows generated by the BOSS Revolution and IDT Global businesses will decline
appreciably in the coming years as the overall paid communications market continues to contract.
On
a consolidated basis, 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, to further strengthen our balance sheet, and to return value to stockholders through purchases of our Class
B common stock and payment of a quarterly dividend We expect that this trend will accelerate and continue to offset declining revenues
from our legacy businesses as our high-margin growth businesses gradually become more significant contributors to our financial results
relative to our declining paid-minute voice communications businesses.
BUSINESS
DESCRIPTION
National
Retail Solutions
NRS
generated $103.1 million in revenues and income from operations of $21.6 million in fiscal 2024, as compared with revenues of $77.1 million
and income from operations of $14.4 million in fiscal 2023.
NRS
operates a network of POS terminals at independent retailers throughout the United States and has a small but growing presence in Canada.
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 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 independently owned convenience, bodega, 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, 2024, the
NRS POS network included approximately 32,100 terminals, an increase from 25,700 a year
earlier. We believe that our network of NRS retailers comprises the largest POS network serving convenience store retailers in the U.S.
by a significant margin. NRS sells its POS terminals through our and NRS’ own dedicated sales agents, through in-house telemarketing,
and through strategic relationships with wholesale distributors.
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 provides the NRS PAY equipment at no cost to the retailer; and
NRS,
though NRS PAY, operates as an independent service organization (ISO), acting as an essential, retailer-facing intermediary between NRS
retailers and its payment facilitator.
At
July 31, 2024, NRS had approximately 21,300 NRS PAY customers compared to approximately 15,800 a year earlier.
The
NRS Insights data are used by licensees both tactically and strategically. Common tactical applications of the data include sales enablement
activities such as identifying core item distribution voids and monitoring speed to shelf and adoption of new product launches. Popular
strategic applications of the data include gaining competitive intelligence, informing research and development activities, and informing
acquisition and merger strategies.
NRS
Insights also provides analytical services to third parties, leveraging its data to answer high impact business questions including,
but not limited to, advertising measurement, market-basket studies, inventory (SKU) optimization, and price elasticity.
In
addition to these recurring sources of revenue, NRS also sells its POS terminals to retailers.
We
believe that NRS’ competitive advantages include:
NRS’
growth strategy includes:
Competition
Currently,
nationwide POS platform service providers, including Square, Toast, Lightspeed, Clover, and NCR, primarily serve retail chains or are
focused on other retail segments, such as sit-down restaurant chains.
NRS
markets its POS platform offerings primarily to independent convenience stores, including bodegas, and other small format retailer store
owners including liquor and tobacco stores. Historically, many of NRS’ customers have not previously used a POS system. In cases
where NRS’ target market is using or does consider an alternative solution, we believe that NRS’ suite of proprietary software
solutions, affordable and discounted POS equipment and free credit card terminals are key drivers behind its success versus the competition.
NRS
expects to encounter more frequent direct competition from local and/or national POS networks as it expands to new adjacent target markets.
Fintech
Fintech
is comprised of BOSS Money and other, significantly smaller, financial services businesses. Fintech revenues were $120.7 million in fiscal
2024 compared to $86.6 million in fiscal 2023. Fintech’s loss from operations was $0.1 million in fiscal 2024 compared to $2.5
million in fiscal 2023. BOSS Money revenues were $108.3 million in fiscal 2024, an increase of 40.8% from revenues of $76.9 million in
fiscal 2023.
BOSS
Money enables customers in the United States and Canada 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. At July 31, 2024, BOSS Money provided its remittance service to 49 countries through approximately 1,300 payer entities
and its payout network included over 235,000 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 and the BOSS Revolution app. To utilize
our digital channel, customers can charge their debit or credit cards or authorize ACH transfers from their bank accounts.
Our
retail channel network comprises licensed and authorized BOSS Money agents nationwide. Customers can initiate transfers through a BOSS
Money agent with cash as well as with their debit or credit cards.
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 and IDT Digital Payments services. To qualify 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 transaction execution 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 marketing to
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, but also through online, media and events advertising.
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 and 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
The
money transfer industry is intensely competitive, with participants ranging from banks, digital remittance providers, fintech startups
and traditional remitters. Digital competitors such as Xoom (a subsidiary of PayPal), Wise, Remitly, and Sendwave along with traditional
money remitters, including Western Union, Ria, MoneyGram, Intermex and Viamericas compete in the remittance space. Increased competition
could result in lower prices, slimmer margins, lower profitability and potential loss of market share.
The ability to adjust pricing and continuously innovate is crucial but also erodes margins. As competition in the remittance market intensifies,
there is a need to increase investment in marketing and promotions to attract and retain customers, which could lead to higher costs
and tighter margins. BOSS Money will also face challenges in retaining customers as the market becomes more competitive, and high churn
rates or failure to increase customer loyalty could negatively impact long-term growth.
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. We believe that BOSS Money’s competitive strengths
include:
■ Our internal sales force, which serves our 28,000 BOSS Money retailers;
■ Our comprehensive compliance processes and procedures; and
■ Our experienced management team.
BOSS
Money’s growth strategy includes:
■ Increasing the number of BOSS Money retail agents; and
■ Addition of new features and offerings.
net2phone
net2phone’s
revenues were $82.3 million in fiscal 2024 compared to $72.4 million in fiscal 2023. net2phone’s income from operations was $1.7
million in fiscal 2024 compared to loss from operations of $2.8 million in fiscal 2023.
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 operates in the United States, Canada, Mexico, Central and South America and Spain.
net2phone’s
offerings include:
These
offerings include advanced feature sets ideal for many mid-market scale businesses with 50 to 1000 seats.
Other
net2phone differentiators include white glove customer service, integrations with third-party software and deep localization. net2phone’s
global infrastructure, locally based sales and customer support teams and native language support, enable net2phone clients to retain
the look and feel of localized customer and user experiences.
net2phone
goes to market through a synergistic combination of channel partnership and direct to end-user sales with differentiated approaches tailored
to each geographic market.
net2phone
focuses primarily on an indirect go-to-market strategy in the majority of its markets, utilizing extensive networks of channel partners
including Technology Solutions Brokerages (TSBs), Tech Services Distributors (TSDs), Managed Service Providers (MSPs), and Value-Added
Resellers (VARs) partners. This channel-centric approach enables net2phone to efficiently reach its extensive target market of midsize
businesses, which rely heavily on these types of service providers to address their IT needs. net2phone’s partner channel is overseen
by regional channel sales managers employed by net2phone.
net2phone
is continuing to expand its direct-to-business channel in each of its markets through digital marketing, brand awareness campaigns, and
participating in local and regional events.
Both
net2phone’s channel partners and direct business customers choose its solutions because of our user-friendly offerings, availability
of in-house support agents, value proposition, and track record of reliability and stability. Channel partners value net2phone for its
extensive customization capabilities, frictionless and rapid quote generation, and competitive compensation – backed by its dedicated
channel sales team.
net2phone’s
direct marketing to channel partners and end users includes search engine marketing, search engine optimization, third-party lead generation
platforms, social media marketing, webinars, industry focused events, and other forms of demand generation.
net2phone’s
indirect marketing funnels through its network of partners, technology distributors, and affiliates and includes tradeshows and local
events, marketing development support for partners and other forms of demand generation, layered with ongoing channel sales training,
proof of concepts and demos.
net2phone
closely tracks its acquisition costs 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
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 AI, mobile devices and social media. The proliferation of AI, 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. net2phone 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.
Traditional
Communications
Our
Traditional Communications segment generated $899.6 million in revenues and income from operations of $56.4 million in fiscal 2024, as
compared with revenues of $1,002.7 million and income from operations of $61.3 million in fiscal 2023.
Traditional
Communications comprises the following businesses:
IDT
Digital Payments
IDT
Digital Payments’ revenues were $407.4 million in fiscal 2024 compared to $417.1 million in fiscal 2023 (45.3% and 41.6% of Traditional
Communications’ revenues in fiscal 2024 and fiscal 2023, respectively). The substantial majority of IDT Digital Payments’
revenue is from sales of international mobile top-up services. IDT Digital Payments offers mobile top-up for approximately 185 different
carriers in more than 100 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, the introduction of digital gift cards and e-sims, cross selling to our current
BOSS Revolution and BOSS Money customers, expansion of the Zendit prepaid platform, and further expansion into the enterprise and wholesale
market as well as other regions.
Competition
IDT
Digital Payments’ major competitors include:
We
believe that IDT Digital Payments’ competitive advantages include:
BOSS
Revolution
BOSS
Revolution’s revenues were $263.2 million in fiscal 2024 compared to $322.1 million in fiscal 2023 (29.3% and 32.1% of Traditional
Communications’ revenues in fiscal 2024 and fiscal 2023, respectively).
BOSS
Revolution 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 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 served, as of July 31, 2024, approximately
1.8 million customers per month.
BOSS
Revolution is offered through our digital channels – the BOSS Revolution app and website, and through our extensive national network
of BOSS Revolution retailers.
BOSS
Revolution allows users to place international long-distance calls at affordable rates from the BOSS Revolution 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 account for free and top-up with a debit or credit card using the
BOSS Revolution app, through the BOSS Revolution 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 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 does
not charge connection, usage or breakage fees. BOSS Revolution’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 website and within the BOSS Revolution app.
Users
of the BOSS Revolution app constitute the majority of our customers to date. At July 31, 2024, approximately 1.25 million customers per
month utilized the BOSS Revolution app.
In
the United States, we distribute our BOSS Revolution 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
and other platform products directly to retailers.
At
July 31, 2024, approximately 28,000 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 3,000 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’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’s distributor relationships and expand
BOSS Revolution’s retail network in other areas of the United States and Canada, including the Southwest and West Coast.
Competition
BOSS
Revolution 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 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 and other international prepaid calling offerings. However, free services typically require both the caller and
recipient to have a broadband connection. BOSS Revolution 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 app, and to innovate
new products and services to fit the evolving needs of our customers.
IDT
Global
IDT
Global’s revenues were $201.1 million in fiscal 2024 compared to $230.3 million in fiscal 2023, contributing 22.4% and 23.0% of
Traditional Communications’ revenues in fiscal 2024 and fiscal 2023, respectively.
IDT
Global is one of the larger 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 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 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 8.0 billion minutes in fiscal 2024, as compared to 9.3 billion minutes in fiscal 2023. IDT Global accounted
for 5.7 billion minutes and 6.3 billion minutes of the total Traditional Communications’ minutes in fiscal 2024 and fiscal 2023,
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,
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, 2024, IDT Global, through its wholesale
carrier organization and IDT Express channel had more than 1,600 customers, including more than 280 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 creditworthy 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 over some participants on certain routes from several inter-related factors:
■ our professional and experienced account management team; and
Communications
and Payment Network Infrastructure and Technology Development
Our
products and services utilize a combination of proprietary software and services as well as technologies and services provided by third
parties. We have developed intuitive user interfaces, customer tools and transaction processing, and database and network applications
that enable our users to reliably and securely complete transactions and help our customers and partners utilize our suite of services.
Our technology infrastructure simplifies the storage and processing of large amounts of data, eases the deployment and operation of large-scale
global products and services, and automates much of the administration of large-scale clusters of computers.
Our
technology infrastructure has been designed around industry-standard architectures to reduce downtime in the event of outages or catastrophic
occurrences. We strive to continually improve our technology infrastructure to enhance the customer experience and to increase efficiency,
scalability, and security. Our platforms’ architecture enables us to connect parties regardless of whether the transaction is occurring
at a traditional physical location, online, or through a mobile device. Our platforms incorporate multiple layers of protection, both
for continuity purposes and to address cybersecurity challenges. We engage in multiple efforts to protect our software platforms against
these challenges, including regularly testing our systems to address potential vulnerabilities.
Our
technology organization is responsible for the design, development, testing, and delivery of new software, technologies, and features
of our products and services, as well as the continued improvement and iteration of our existing products and services. Our technology
employees are distributed globally in our Newark, Jerusalem, Guatemala, Warsaw, and Minsk offices. Our technology team consists of our
software engineering, voice engineering, quality engineering, data warehousing, ML (Machine Learning) and AI (Artificial Intelligence)
development, data engineering, systems, NOC (Network Operations Center), and operations teams. We intend to continue to invest in our
research and development capabilities to extend our products and services.
Our
technology organization uses several key performance indicators to track service quality that meet or exceed industry standards for Software-as-a-Service
and technology enabled services. Our technology organization maintained an aggregate service uptime of approximately 99.97% in fiscal
2024. The software defect escape ratio, a measure of quality engineering for our flagship BOSS Revolution brand, was 4% in fiscal 2024,
meaning more than 96% of product defects were detected and fixed internally before being released to our customers. Furthermore, this
high level of quality was achieved utilizing suites of proprietary tests of which the majority are fully automated by a combination of
proprietary software and technologies provided by third parties.
Our
product offerings and go-to-market strategy continue to evolve, and we expect our product offerings to continue to become available to
customers at more frequent intervals than our historical release cycles. Our Agile development methodology is characterized by a dynamic
development process with more frequent revisions to a product release’s features and functions as the software is being developed.
In addition, we have implemented a holistic portfolio management process, which has improved transparency and efficiency across the portfolio
through a recurring cadence of business reviews.
REGULATION
The
following summary of regulatory developments and legislation is intended to describe what we believe to be the most important, but not
all, current and proposed international, federal, state, and local laws, regulations, orders, and legislation that are likely to materially
affect us.
Regulation
of Telecom in the United States
Telecommunications
services are subject to extensive government regulation at both the federal and state levels in the United States. Any violations of
the regulations may subject us to enforcement actions, including interest and penalties. The Federal Communications Commission, or FCC,
has jurisdiction over all telecommunication’s common carriers to the extent they provide interstate or international communications
services, including the use of local networks to originate or terminate such services. Each state regulatory commission has jurisdiction
over the same carriers with respect to their provision of local and intrastate communications services. Local governments often indirectly
regulate aspects of our communications business by imposing zoning requirements, taxes, permit or right-of-way procedures or franchise
fees. Significant changes to the applicable laws or regulations imposed by any of these regulators could have a material adverse effect
on our business, operating results and financial condition.
Regulation
of Telecom by the Federal Communications Commission
In
1997, the FCC issued an order, referred to as the Universal Service Order, that requires all telecommunications carriers providing interstate
telecommunications services to contribute to universal service support programs administered by the FCC (known as the Universal Service
Fund). In addition, beginning in October 2006, interconnected VoIP providers, such as our subsidiary net2phone, are required to contribute
to the Universal Service Fund. These periodic contributions are currently assessed based on a percentage of each contributor’s
interstate and international end user telecommunications revenues reported to the FCC. We also contribute to several other regulatory
funds and programs, most notably Telecommunications Relay Service, or TRS, FCC Regulatory Fees, and Local Number Portability (collectively,
the Other Funds). We and most of our competitors pass through Universal Service Fund and Other Funds contributions as part of the price
of our services, either as part of the base rate or, to the extent allowed, as a separate surcharge on customer bills. Due to the manner
in which these contributions are calculated, we cannot be assured that we fully recover from our customers all of our contributions.
In addition, based on the nature of our current business, we receive certain exemptions from Universal Service Fund contributions. Changes
in our business could eliminate our ability to qualify for some or all of these exemptions. As a result, our ability to pursue certain
new business opportunities in the future may be constrained in order to maintain these exemptions, the elimination of which could materially
affect the rates we would need to charge for existing services. Changes in regulation may also have an impact on the availability of
some or all of these exemptions. If even some of these exemptions become unavailable, they could materially increase our Universal Service
Fund or Other Funds’ contributions and have a material adverse effect on the cost of our operations and, therefore, on our ability
to continue to operate profitably, and to develop and grow our business. We cannot be certain of the stability of the contribution factors
for the Other Funds. Significant increases in the contribution factor for the Other Funds in general and the TRS Fund in particular can
impact our profitability. Whether these contribution factors will be stable in the future is unknown, but it is possible that we will