IDT CORP (IDT)

Results of Operations

We evaluate the performance of our business segments based primarily on income (loss) from operations. Accordingly, the income and expense line items below income (loss) from operations are only included in our discussion of the consolidated results of operations.

As of April 30, 2026, we owned 94.0% of the outstanding shares of our subsidiary, net2phone 2.0, Inc., or net2phone 2.0, which owns and operates the net2phone segment, and 82.3% of the outstanding shares of National Retail Solutions, Inc. or NRS. On a fully diluted basis assuming all the vesting criteria related to various rights granted have been met, we would own 89.9% of the equity of net2phone 2.0 and 80.2% of the equity of NRS.

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Explanation of Performance Metrics

Our results of operations discussion may include the following performance metrics:

NRS utilizes two performance metrics to measure the size of its customer base: active POS terminals and payment processing accounts. Active POS terminals are the number of POS terminals that have completed at least one transaction in the calendar month. It excludes POS terminals that have not been fully installed by the end of the month. Payment processing accounts are accounts that can generate revenue. It excludes accounts that have been approved but not activated.

In addition to the foregoing, NRS uses recurring revenue and monthly average recurring revenue per terminal as performance metrics. NRS recurring revenue is NRS’ revenue in accordance with U.S. GAAP, excluding its revenue from POS terminal sales.  Monthly average recurring revenue per terminal is recurring revenue divided by the average number of active POS terminals in the relevant period, divided further by the number of months in the relevant period. Trends and comparisons between periods for these metrics are used in the analysis of revenue, direct cost of revenue, and gross profit.

BOSS Money uses several performance metrics including transactions, average revenue per transaction, and send volume, to evaluate customer usage and revenue productivity. Transactions represent the number of remittance transfers processed during the period, average revenue per transaction is calculated by dividing BOSS Money revenue by the number of transactions, and send volume represents the aggregate amount of principal remitted by customers. Trends and comparisons between periods for these metrics are used in the analysis of revenue, direct cost of revenue, and gross profit.

net2phone’s UNITE (UCaaS), and uContact (CCaaS)  offerings  are priced on a per-seat basis, with customers paying based on the number of users in their organization. net2phone AI Agent and Coach (an AI-based contact center performance optimization tool) offerings are priced according to fixed bundles of interaction credits. net2phone’s subscription revenue is its revenue in accordance with U.S. GAAP including its AI Agent bundle offering but excluding its equipment revenue and revenue generated by a legacy SIP trunking offering in Brazil. Trends and comparisons between periods for these metrics are used in the analysis of revenue, direct cost of revenue, and gross profit.

Minutes of use is a nonfinancial metric that measures aggregate customer usage during a reporting period. Minutes of use is an important factor in BOSS Revolution’s and IDT Global’s revenue recognition since satisfaction of our performance obligation occurs when the customer uses our service. Minutes of use trends and comparisons between periods are used in the analysis of revenues, direct cost of revenues, and gross profits.

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Three and Nine Months Ended April 30, 2026 Compared to Three and Nine Months Ended April 30, 2025

NRS Segment

NRS, which represented 12.0% and 10.3% of our total revenues in the three months ended April 30, 2026 and 2025, respectively, and 11.9% and 10.3% of our total revenues in the nine months ended April 30, 2026 and 2025, respectively, operates a POS network in the United States and Canada that provides independent retailers with POS equipment, store management software, electronic payment processing, and other ancillary merchant services. NRS’ POS platform also provides marketers with retail media advertising and transaction data.

Revenues. Revenues increased in the three and nine months ended April 30, 2026 from the comparative prior-year periods. These increases were driven primarily by continued growth in recurring revenue, reflecting the expansion of NRS’ retailer network, increased penetration of payment processing services, improved payment processing economics, retail customers' increasing use of credit/debit cards rather than cash, and increased software revenue per terminal as retailers increasingly adopted premium software as a service (SaaS) features and functionalities.

Direct Cost of Revenues. Direct cost of revenues increased in the three and nine months ended April 30, 2026 from the comparative prior-year periods, driven primarily by higher direct costs associated with the increased scope of NRS’ operations and increased sales, including increased costs related to POS terminal sales and merchant services.

Selling, General and Administrative. Selling, general and administrative expense increased in the three and nine months ended April 30, 2026 from the comparative prior-year periods. These increases were primarily driven by increases in personnel-related costs and other operating expenses supporting NRS’ continued growth. As a percentage of NRS’ revenue, NRS’ selling, general and administrative expense decreased to 61.5% from 64.2% in the three months ended April 30, 2026 and 2025, and to 60.1% from 61.4% in the nine months ended April 30, 2026 and 2025, respectively

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Technology and Development. Technology and development expense increased in the three and nine months ended April 30, 2026 from the comparative prior-year periods. These increases were primarily driven by general ongoing business investments to develop premium software services provided through the NRS platform, and in other development and operations supporting our business platforms.

Fintech Segment

Fintech, which represented 14.3% and 12.8% of our total revenues in the three months ended April 30, 2026 and 2025, respectively, and 13.4% and 12.3% of our total revenues in the nine months ended April 30, 2026 and 2025, respectively, is comprised of: (i) BOSS Money, a provider of international money remittance and related value/payment transfer services; (ii) IDT Financial Services Limited, or IDT Financial Services, a Gibraltar-based bank; (iii) IDT Services Limited (“IDTS”), a Malta-based electronic money institution; and (iv) other, significantly smaller, financial services businesses, including a variable interest entity (“VIE”), that processes disbursement payments, which we refer to as the Disbursement Payments VIE.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words “believes,” “anticipates,” “expects,” “plans,” “intends” and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those discussed under Item 1A to Part I “Risk Factors” in this Annual Report. The forward-looking statements are made as of the date of this Annual Report, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our periodic and current reports on Forms 10-Q and 8-K.

The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Annual Report.

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Our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Annual Report generally discusses fiscal 2026 and fiscal 2025 items and year-to-year comparisons between fiscal 2026 and fiscal 2025. Discussions of fiscal 2024 items and year-to-year comparisons between fiscal 2025 and fiscal 2024 that are not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2025.

CRITICAL ACCOUNTING ESTIMATES

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting estimates are estimates made in accordance with U.S. GAAP that involve a significant level of estimation uncertainty and have had, or are reasonably likely to have, a material impact on our financial condition or results of operations. Our critical accounting estimates include those related to goodwill impairment testing, valuation of long-lived assets, allowance for credit losses, and income taxes, sales taxes. See Note 1 to the Consolidated Financial Statements in Item 8 to Part II of this Annual Report for a complete discussion of our significant accounting policies.

Goodwill Impairment Testing

Under U.S. GAAP, goodwill is not amortized but is reviewed annually for impairment at a level of reporting referred to as a reporting unit. A reporting unit is an operating segment, or one level below the operating segment, depending on whether certain criteria are met.

Our annual assessment date is May 1. An interim impairment test would be required whenever events or circumstances make it more likely than not that an impairment may have occurred. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount. We would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill. Additionally, we consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

We have the option to perform a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test. However, we may elect to perform the quantitative goodwill impairment test even if no indications of a potential impairment exist.

The carrying amount of our goodwill by reporting unit was as follows:

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For our annual goodwill impairment tests as of May 1, 2026 and 2025, we performed qualitative assessments for all of our reporting units that indicated that it was more likely than not that the fair values of our reporting units exceeded their respective carrying values and, therefore, did not result in any impairments.

We do not believe we are currently at risk of goodwill impairment based on qualitative assessments of our reporting units for the three months ended July 31, 2026. We considered several factors in these qualitative assessments including (i) the business enterprise value of the reporting unit from the last quantitative test and the excess of the fair value over carrying value, (ii) macroeconomic conditions including changes in interest rates and discount rates, (iii) industry and market considerations including industry revenue, EBITDA margins, and multiples based on business enterprise value to revenues and to EBITDA, and (iv) the recent financial performance and budget of the reporting unit.

Calculating the fair value of a reporting unit requires significant estimates and assumptions by management. The key assumptions and judgments underlying our quantitative assessment include the discount rates and terminal growth rates used in our discounted cash flow analysis, the revenue and EBITDA projections for our reporting units, and estimates of future levels of gross and operating profits and capital expenditures. Should the estimates and assumptions regarding the fair value of the reporting units prove to be incorrect, we may be required to record impairments to goodwill in future periods.

Valuation of Long-Lived Assets

We test the recoverability of our long-lived assets whenever events or changes in circumstances indicate that the carrying value of any such asset may not be recoverable. Such events or changes in circumstances include:

There were no such events or changes in circumstances in fiscal 2026 or fiscal 2025. If we determine that events or changes in circumstances indicate the carrying value of certain long-lived assets may not be recoverable, we test for impairment based on the projected undiscounted cash flows to be derived from such asset. If the projected undiscounted future cash flows are less than the carrying value of the asset, we will record an impairment loss based on the difference between the estimated fair value and the carrying value of the asset. We generally measure fair value by considering sale prices for similar assets or by discounting estimated future cash flows from the asset using an appropriate discount rate. Cash flow projections for specific assets and fair value estimates of assets require significant estimates and assumptions by management that have a significant level of estimation uncertainty. Should our estimates and assumptions prove to be incorrect, we may be required to record impairments in future periods and such impairments could be material.

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Allowance for Credit Losses on Accounts Receivable

Our allowance for credit losses was $6.9 million and $9.1 million at July 31, 2026 and 2025, respectively. The decrease was partially due to the write-off of aged net2phone trade accounts receivable and the related allowance. The allowance as a percentage of gross trade accounts receivable decreased to 10.2% at July 31, 2026 from 17.5% at July 31, 2025 because, at July 31, 2026 compared to July 31, 2025, gross trade accounts receivable increased 30.3% and the allowance decreased 23.7%. The most significant increase in the trade accounts receivable balance at July 31, 2026 compared to July 31, 2025 was in NRS, due to trade accounts receivable generated by the post-acquisition operations of NRS OnCore, the entity through which the Company operates the business acquired from Oncore Digital (see Note 2 to our Consolidated Financial Statements).

We maintain an allowance for credit losses on our trade accounts receivable based on a forward-looking current expected credit loss ("CECL") model. In estimating expected credit losses, we consider the probability of recoverability of accounts receivable based on historical write-off experience, net of recoveries, current collection trends, the aging of accounts receivable, and general economic factors, including bankruptcy rates. Allowances generally increase as receivables age, and specific accounts may be fully reserved when known collection issues exist, such as pending bankruptcies. Account balances are written off against the allowance when recovery is determined to be unlikely. We have elected the practical expedient under ASU 2025-05 for our current trade accounts receivable. Under this expedient, rather than developing separate forecasts of future economic conditions, we assume in estimating expected credit losses that current conditions as of the balance sheet date will not change over the assets' remaining lives.

Our allowance for credit losses estimate is subject to change due to new developments, changes in assumptions or changes in our strategy. We continually assess the likelihood of potential amounts or ranges of recoverability and adjust our allowance accordingly; however, actual collections and write-offs of trade accounts receivable may materially differ from our estimates.

Income Taxes and Sales Taxes

Our current and deferred income taxes and associated valuation allowance and accruals for sales taxes, are impacted by events and transactions arising in the normal course of business as well as in connection with special and non-routine items. Assessment of the appropriate amount of income taxes and sales taxes is dependent on several factors, including estimates of the timing and realization of deferred income tax assets, judgments about the potential results of audits and applicability of regulatory agency rules and regulations, as well as judgments and assumptions about changes in income tax, sales tax, and regulatory agency laws, rules, or regulations.

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The valuation allowance on our deferred income tax assets was $11.6 million and $14.9 million at July 31, 2026 and 2025, respectively. In fiscal 2026, we decreased the valuation allowance by $3.3 million, due to profitability in the United Kingdom as well as restructuring of foreign operations. In fiscal 2025, we decreased the valuation allowance by $3.4 million, due to profitability in the United Kingdom, offset by $4.7 million of additions in other jurisdictions.

On June 21, 2018, the United States Supreme Court rendered a decision in South Dakota v. Wayfair, Inc., holding that a state may requi

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