IDT CORP (IDT) FY 2026 MD&A

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 require a remote seller with no physical presence in the state to collect and remit sales tax on goods and services provided to purchasers in the state, overturning certain existing court precedent. It is possible that one or more jurisdictions may assert that we have liability for periods for which we have not collected sales, use or other similar taxes, and if such an assertion or assertions were successful it could materially and adversely affect our business, financial position, and operating results. One or more jurisdictions may change their laws or policies to apply their sales, use or other similar taxes to our operations, and if such changes were made it could materially and adversely affect our business, financial position, and operating results.

RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED

In September 2025, the FASB issued ASU 2025-06, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which simplifies the capitalization guidance by removing all references to software development project stages, making the guidance neutral to different software development methodologies, including Agile and other iterative approaches. The amendments are effective for us for annual reporting periods beginning August 1, 2028 (fiscal year 2029), with early adoption permitted. An entity may apply the amendments prospectively, retrospectively, or on a modified retrospective basis. Based on our preliminary assessment, we do not expect adoption to have a material effect on our consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40), to improve disclosures about an entity’s expenses by requiring more detailed information about the types of expenses underlying commonly presented income statement captions. The amendments will require us to disclose, in tabular format at each interim and annual reporting period, disaggregated information about prescribed expense categories underlying relevant income statement captions, as well as the total amount of selling expense and a qualitative description of the composition of amounts not separately disclosed. The amendments are effective for our fiscal year beginning on August 1, 2027 (fiscal year 2028) and for interim periods beginning August 1, 2028 (fiscal year 2029), with early adoption permitted. The amendments may be applied either prospectively or retrospectively to any or all prior periods presented, and we are currently evaluating the timing of adoption and the transition method. We do not expect adoption to have a material effect on our financial position or results of operations, but expect that adoption will result in additional disclosures in the notes to our consolidated financial statements.

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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 consolidated results of operations.

As of July 31, 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 NRS. On a fully diluted basis assuming all the vesting criteria related to various rights granted have been met, we would own 90.0% of the equity of net2phone 2.0 and 80.2% of the equity of NRS.

Reclassifications

During fiscal 2026, we reclassified certain prepaid expenses to trade accounts receivable. Specifically, in the consolidated balance sheet at July 31, 2025, $2.1 million previously reported within "Prepaid expenses" was reclassified to "Trade accounts receivable." In the consolidated statements of cash flows for the fiscal years ended July 31, 2025 and 2024, cash provided by (used in) operating activities of $0.5 million and $(1.0) million, respectively, previously reported within "Prepaid expenses, other current assets, and other assets" were reclassified to "Trade accounts receivable."

During fiscal 2026, we also reclassified settlement assets and disbursement prefunding in the consolidated statements of cash flows, which had previously been included within "Settlement assets, disbursement prefunding, prepaid expenses, other current assets, and other assets." In the consolidated statements of cash flows for the fiscal years ended July 31, 2025 and 2024, cash (used in) provided by operating activities of ($13.9) million and $8.2 million respectively, previously reported within "Settlement assets, disbursement prefunding, prepaid expenses, other current assets, and other assets" were reclassified to be presented as a separate line item, "Settlement assets and disbursement prefunding."

Concentration of Customers

While they may vary from quarter to quarter, our five largest customers collectively accounted for 12.5%, 8.9%, and 10.3% of our consolidated revenues in fiscal 2026, fiscal 2025, and fiscal 2024, respectively. Our customers with the five largest receivables balance collectively accounted for 9.9% and 20.4% of our consolidated gross trade accounts receivable at July 31, 2026 and 2025, respectively. This concentration of customers increases our risk associated with nonpayment by those customers. In an effort to reduce our risk, we perform ongoing credit evaluations of our significant customers, and in some cases, do not offer credit terms to customers, choosing instead to require prepayment. Historically, when we have issued credit, we have not required collateral to support trade accounts receivable from our customers. However, when necessary, we have imposed stricter credit restrictions on our customers. In some cases, this has resulted in our sharply curtailing, or ceasing completely, sales to certain customers.

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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 POS terminals that have completed at least one transaction in the calendar month. They exclude POS terminals that have not been fully installed by the end of the month. Payment processing accounts are accounts that can generate revenue. They exclude 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 bundled offerings but excluding sales of 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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Year Ended July 31, 2026 compared to Year Ended July 31, 2025

The following table sets forth certain items in our statements of income as a percentage of our total revenues:

NRS Segment

NRS, which represented 12.3%, 10.5%, and 8.6% of our total revenues in fiscal 2026, fiscal 2025, and fiscal 2024, 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.

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Revenues. Revenues increased in fiscal 2026 compared to fiscal 2025 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 at NRS locations, and increased software revenue per terminal as retailers increasingly adopted premium software as a service (SaaS) features and functionalities. Net additions of POS terminals and NRS Pay accounts moderated compared to fiscal 2025, though both continued to grow at double-digit rates. Growth in recurring revenue was increasingly driven by higher revenue per terminal.

Direct Cost of Revenues. Direct cost of revenues increased in fiscal 2026 compared to fiscal 2025 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. Direct costs of revenues increased at a slower rate than revenue, contributing to an increase in gross margin.

Selling, General and Administrative. Selling, general and administrative expense increased in fiscal 2026 compared to fiscal 2025 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 was 60.3%, 60.6%, and 60.7% in fiscal 2026, fiscal 2025, and fiscal 2024, respectively.

Technology and Development. Technology and development expense increased in fiscal 2026 compared to fiscal 2025 primarily driven by general ongoing business investments to develop premium software services provided through the NRS platform, to develop offerings for new markets, and in other development and operations supporting our business platforms.

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Fintech Segment

Fintech, which represented 13.6%, 12.6%, and 10.0% of our total revenues in fiscal 2026, fiscal 2025, and fiscal 2024, 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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Revenues. Revenues increased in fiscal 2026 compared to fiscal 2025 driven by higher digital transaction volumes initiated on the BOSS Money and BOSS Revolution Calling apps in addition to higher foreign currency exchange revenues to select regions, mainly Guatemala and Mexico. BOSS Money continued to benefit from cross-marketing to BOSS Revolution and IDT Digital Payments retail customers.

Direct Cost of Revenues. Direct cost of revenues increased in fiscal 2026 compared to fiscal 2025 primarily due to increases in BOSS Money’s direct cost of revenues, consistent with the growth in BOSS Money revenue. As transaction volumes increase, associated payout and processing fees also increase, partially offset by us reducing the transaction fee that we pay to our money transfer payors. Direct cost of revenues increased at a slower rate than revenue, reflecting continued growth in the higher-margin digital channel relative to the retail channel, contributing to an increase in gross margin.

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Selling, General and Administrative. Selling, general and administrative expense increased in fiscal 2026 compared to fiscal 2025 primarily due to higher debit and credit card processing charges, chargebacks, and other operating costs associated with growth in BOSS Money’s digital transaction activity. As a percentage of Fintech’s revenue, Fintech’s selling, general and administrative expense was 44.3%, 42.8%, and 49.4% in fiscal 2026, fiscal 2025, and fiscal 2024, respectively.

Technology and Development. Technology and development expense increased in fiscal 2026 compared to fiscal 2025 primarily due to increases in employee compensation, including non-cash compensation, and other development-related costs, partially offset by lower depreciation and amortization expense.

net2phone Segment

The net2phone segment, which represented 7.4%, 7.1%, and 6.8% of our total revenues in fiscal 2026, fiscal 2025, and fiscal 2024, respectively, is comprised of net2phone’s communications and workflow solutions including UCaaS, CCaaS, net2phone AI Agent and Coach solutions.

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Revenues. net2phone’s revenues increased in fiscal 2026 compared to fiscal 2025 primarily due to increased UCaaS and CCaaS services revenue, primarily reflecting an increase in seats served during the respective periods. The increase was augmented by the impact of the increase in relatively higher revenue per seat CCaaS seats served, by the positive foreign currency impact of strengthening local currencies versus the U.S. dollar in certain Latin American markets, and by the introduction of agentic AI offerings in fiscal 2026.

Direct Cost of Revenues. Direct cost of revenues increased in fiscal 2026 compared to fiscal 2025 primarily due to the costs incurred serving the expanded number of seats served. Direct costs increased at a slower rate than revenue, reflecting the relatively rapid growth of higher-margin CCaaS seats compared to UCaaS.

Selling, General and Administrative. Selling, general and administrative expense increased in fiscal 2026 compared to fiscal 2025 primarily due to increases in compensation and sales commissions, as well as increases in marketing and consulting expenses. As a percentage of net2phone’s revenues, net2phone’s selling, general and administrative expense decreased to 58.2% from 59.6% and 63.9% in fiscal 2026, fiscal 2025, and fiscal 2024, respectively.

Technology and Development. Technology and development expense increased in fiscal 2026 compared to fiscal 2025 primarily due to increases in employee compensation, maintenance, cloud services, and depreciation and amortization expenses.

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Traditional Communications Segment

The Traditional Communications segment, which represented 66.7%, 69.8%, and 74.6% of our total revenues in fiscal 2026, fiscal 2025, and fiscal 2024, respectively, includes: (i) IDT Digital Payments, which enables customers to transfer airtime and bundles of airtime, messaging, and data to international and domestic mobile accounts; (ii) IDT Global, a wholesale provider of international voice and SMS termination and outsourced traffic management solutions to telecoms worldwide; and (iii) BOSS Revolution, an international long-distance calling service marketed primarily to immigrant communities in the United States and Canada. Traditional Communications also includes other small businesses and offerings including early-stage business initiatives and mature businesses in harvest mode.

IDT Digital Payments and BOSS Revolution are sold directly to consumers and through the BOSS Money and BOSS Revolution apps as well as through distributors and retailers. We receive payments for BOSS Revolution and IDT Digital Payments prior to providing the services. We recognize the revenue when services are provided to the customer. Traditional Communications’ revenues tend to be somewhat seasonal, with the second fiscal quarter (which contains Christmas and New Year’s Day) and the fourth fiscal quarter (which contains Mother’s Day and Father’s Day) typically showing higher minute volumes. IDT Global's revenue is generally recognized as minutes are terminated and for SMS when messages are transmitted, in accordance with wholesale carrier agreements. Customers are typically invoiced in arrears and settle balances on a periodic basis following the completion of services.

Revenues. Revenues for the Traditional Communications segment increased in fiscal 2026 compared to fiscal 2025 primarily due to higher revenues from IDT Global and IDT Digital Payments, which more than offset the decline in BOSS Revolution revenues. IDT Global revenues increased primarily due to higher international long-distance traffic volumes and improved product mix, while IDT Digital Payments revenues increased due to higher transaction volumes and continued growth in digital payment channels. The decline in BOSS Revolution revenues reflected industry-wide trends, including the proliferation of unlimited calling plans and free over-the-top voice and messaging services, which have reduced demand for prepaid international calling plans.

Direct Cost of Revenues. Direct cost of revenues increased in fiscal 2026 compared to fiscal 2025 reflecting higher minutes of use for IDT Global and associated network and carrier costs, as well as higher direct cost of revenues associated with IDT Digital Payments reflecting increased transaction volumes, partially offset by lower minutes of use and associated network and settlement costs in BOSS Revolution, and the ongoing rotation within IDT Digital Payments from its lower margin retail channel to higher margin digital consumer offerings.

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Selling, General and Administrative. Selling, general and administrative expense decreased in fiscal 2026 compared to fiscal 2025 primarily due to decreases in compensation, sales commissions, bad debt expense, and marketing expense, partially offset by an increase in non-cash compensation expense. As a percentage of Traditional Communications’ revenue, Traditional Communications’ selling, general and administrative expense was 8.7%, 9.3%, and 9.4% in fiscal 2026, fiscal 2025, and fiscal 2024, respectively.

Technology and Development. Technology and development expense increased in fiscal 2026 compared to fiscal 2025 primarily due to increases in employee compensation, including non-cash compensation, partially offset by decreases in cloud services, and depreciation and amortization expenses.

Corporate

Corporate costs mainly include compensation, consulting fees, treasury, tax and accounting services, human resources, corporate purchasing, corporate governance including Board of Directors’ fees, internal and external audit, investor relations, corporate insurance, corporate legal, and other corporate-related general and administrative expenses. Corporate does not generate any revenues, nor does it incur any direct cost of revenues.

General and Administrative. Corporate general and administrative expense increased in fiscal 2026 compared to fiscal 2025 primarily because of employee-related costs and overhead expenses during the period. As a percentage of our consolidated revenues, Corporate general and administrative expense was 1.0%, 0.9%, and 0.9% in fiscal 2026, fiscal 2025, and fiscal 2024, respectively.

Other Operating Income (Expense), net. Corporate other operating income increased in fiscal 2026 compared to fiscal 2025, primarily due to a decrease in expense related to the settlement of litigation associated with the Straight Path Communications Inc. class action (see Note 23—Commitments and Contingencies).

Consolidated

The following is a discussion of our consolidated stock-based compensation expense, and our consolidated income and expense line items below income from operations.

Stock-Based Compensation Expense. Total stock-based compensation expense included in consolidated selling, general and administrative expense and technology and development expense was $10.5 million and $3.1 million in fiscal 2026 and fiscal 2025, respectively.

The increase reflects expense recognized in connection with DSUs granted to executive officers and employees under the Company's long-term incentive programs. The fiscal 2026 three-year DSU grant was made on September 18, 2025, however, as provided for in the incentive compensation program, the relevant vesting dates are February 17, 2026, February 16, 2027, and February 15, 2028. Accordingly, the vesting periods for determining the amortization of the related charges were shorter than twelve and twenty-four months, resulting in an accelerated charge during the first quarters following the grant date. In addition, the grant-date fair value of the DSUs was higher than then in the previous year, as it was determined using a base stock price of $50.90 per share, reflecting the price of the Company's Class B common stock as of the date of internal discussions related to the grant (February 2025), rather than the closing market price of $67.91 per share on the actual grant date of September 18, 2025, resulting in greater value being placed on the grants for accounting purposes.

As of July 31, 2026, there was an aggregate of $6.4 million in unrecognized compensation cost related to non-vested stock options, DSUs and restricted stock, which is expected to be recognized over the remaining vesting periods that end in fiscal 2029.

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Other income (expense), net. Other income (expense), net consists of the following:

We have an investment in shares of convertible preferred stock of MarketSpark Inc., a communications company (“MarketSpark”). As of both July 31, 2026 and 2025, our ownership was 33.4% of MarketSpark’s outstanding shares on an as-converted basis. We account for this investment using the equity method since we can exercise significant influence over the operating and financial policies of MarketSpark but do not have a controlling interest. We determined that on the dates of the acquisitions of MarketSpark’s shares, there were differences between our investment in MarketSpark and our proportional interest in the equity of MarketSpark of an aggregate of $8.2 million, which represented the share of MarketSpark’s customer list on the dates of the acquisitions attributed to our interest in MarketSpark. These basis differences are being amortized over the 6-year estimated life of the customer list. “Equity in the net loss of investee” includes the amortization of equity method basis difference.

(Provision for) Benefit from Income Taxes. With our reacquisition of net2phone in March 2006, its losses were limited under IRC Section 382 to approximately $7.0 million per year. In fiscal 2024, we had an IRC Section 382 study conducted on the reacquisition and the limitation was adjusted to $9 million per year. We recorded a tax benefit related to the adjusted amount of $23.6 million in fiscal 2024. The change in income tax expense in fiscal 2026 compared to fiscal 2025, excluding the income tax benefit in fiscal 2025 recorded to reflect the $3.3 million release of a valuation allowance in the United Kingdom, was primarily due to differences in the amount of taxable income earned in the various taxing jurisdictions.

Net Income Attributable to Noncontrolling Interests. The increase in the net income attributable to noncontrolling interests in fiscal 2026 compared to fiscal 2025 was primarily due to increases in net income attributable to the noncontrolling interests in NRS, net2phone 2.0, and the Disbursement Payments VIE, as well as a decrease in the net loss attributable to noncontrolling interests within Traditional Communications.

LIQUIDITY AND CAPITAL RESOURCES

As of the date of this Annual Report, we expect our cash from operations and the balance of cash, cash equivalents, debt securities, and current equity investments that we held on July 31, 2026 will be sufficient to meet our currently anticipated working capital and capital expenditure requirements during the twelve-month period ending July 31, 2027.

At July 31, 2026, we had cash, cash equivalents, debt securities, and current equity investments of $271.9 million (excluding restricted cash and cash equivalents) and working capital (current assets in excess of current liabilities) of $303.5 million.

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Contractual Obligations and Commitments

The following table includes our anticipated material cash requirements from contractual obligations and other commitments at July 31, 2026:

Consolidated Financial Condition

Operating Activities

Our cash flows from operations vary significantly from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, trade accounts receivable, trade accounts payable, and the impact of settlement assets, disbursements prefunding and customer fund deposits.

Settlement assets and disbursements prefunding increased $27.8 million and $47.3 million, respectively, during the year ended July 31, 2026, compared to the prior-year period. The increase in settlement assets reflects a higher level of funds due from customers for pending money-remittances at BOSS Money. The increase in disbursements prefunding reflects, for the most part, higher levels of funds pre-paid to disbursement partners to fulfill expected customer remittance obligations at BOSS Money, and, to a smaller extent, higher levels of pre-payments made to providers of goods and services to fulfill expected customer purchases of goods and services obligations at IDT Digital Payments.

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Towards the end of each week, IDT prefunds BOSS Money disbursement partners for remittances expected during the upcoming weekend. As a result, Friday is typically the day of the week on which IDT’s cash balance is at its lowest level, after prefunding disbursements for the upcoming weekend. Conversely, Wednesday is typically the day of the week on which IDT’s cash balance is at its highest level, after IDT collects cash from digital processors and retailers for all of the remittances originated during the preceding weekend but before the new weekly cycle of prefunding disbursements for the upcoming weekend begins again. This weekly cycle constitutes a significant working capital use of the Company’s cash, and, as such, the day of the week on which the quarter ends can have significant impact on the cash balance reported at the balance sheet date.

Customer fund deposits increased $30.1 million during the year ended July 31, 2026 reflecting balances held on behalf of customers across our prepaid, digital payments, and disbursements programs. These balances are supported by restricted cash and cash equivalents held by IDT Financial Services and our Disbursement Payments VIE and fluctuate based on transaction volume and program activity.

On June 21, 2018, the United States Supreme Court rendered a decision in South Dakota v. Wayfair, Inc., holding that a state may require a remote seller with no physical presence in the state to collect and remit sales tax on goods and services provided to purchasers in the state, overturning certain existing court precedent. It is possible that one or more jurisdictions may assert that we have liability for periods for which we have not collected sales, use or other similar taxes, and if such an assertion or assertions were successful it could materially and adversely affect our business, financial position, and operating results. One or more jurisdictions may change their laws or policies to apply their sales, use or other similar taxes to our operations, and if such changes were made it could materially and adversely affect our business, financial position, and operating results.

As discussed in Note 23 to the Consolidated Financial Statements included in Item 8 to Part II of this Annual Report, we and other parties were named in a putative class action and derivative complaint related to Straight Path Communications Inc. filed in the Court of Chancery of the State of Delaware. The Court dismissed all claims against us, and found that, contrary to the plaintiffs’ allegations, the class suffered no damages. The plaintiffs filed an appeal to which we answered. Oral argument was held on October 22, 2025, and on December 3, 2025, the Delaware Supreme Court affirmed the favorable decision of the Court of Chancery that dismissed all claims against us and found that Plaintiff and the class suffered no damages.

Investing Activities

In fiscal 2026 and fiscal 2025, we deployed $23.1 million and $20.7 million for capital expenditures, respectively. We currently anticipate that total capital expenditures in the twelve-month period ending July 31, 2027 will be $22.5 million to $23.5 million. We expect to fund our capital expenditures with our net cash provided by operating activities and cash, cash equivalents, debt securities, and current equity investments on hand.

In February 2025, the Company entered into a revolving credit facility with MarketSpark with an aggregate principal amount of up to $2.0 million. Borrowings under the facility bear interest at 12% per annum, payable semiannually, and are due and payable in February 2027. Between February 2025 and July 2025, the Company advanced MarketSpark $1.9 million under the facility. In June 2026, the Company advanced MarketSpark an additional $0.1 million, fully drawing the facility. In July 2026, the Company provided MarketSpark an additional $0.2 million under a new subordinated loan agreement, due and payable in February 2027. As of  July 31, 2026, $2.2 million of principal was outstanding under the revolving credit facility and subordinated loan agreement.

In fiscal 2025, each of MarketSpark’s shareholders, including us, purchased additional shares of MarketSpark’s convertible preferred stock. We paid an aggregate of $0.9 million in fiscal 2025, to purchase additional shares.

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Purchases of debt securities and equity investments were $64.4 million and $33.5 million in fiscal 2026 and fiscal 2025, respectively. Proceeds from maturities and sales of debt securities and redemptions of equity investments were $43.3 million and $36.3 million in fiscal 2026 and fiscal 2025, respectively.

On May 1, 2026, NRS completed an asset purchase agreement under which it acquired certain assets and assumed certain liabilities of Oncore Digital, Inc. and its wholly owned subsidiaries (“the Acquired Business”). The Acquired Business is a digital media brokerage operation engaged in digital advertising and monetization. In connection with the transaction, the Acquired Business was contributed to a newly formed entity (“NRS OnCore”), in which the sellers retained a 20% noncontrolling interest and NRS obtained an 80% controlling interest. Accordingly, NRS consolidates NRS OnCore under the voting interest model in accordance with ASC 810, Consolidation.  The aggregate purchase consideration was approximately $4.8 million, consisting of $3.3 million in cash and shares of IDT Class B common stock with an aggregate value of $1.5 million, subject to customary post-closing adjustments. In addition, NRS assumed liabilities of $0.1 million in connection with the transaction, resulting in a total acquisition date fair value of $4.9 million. The acquisition is expected to integrate Oncore Digital’s advertising technology, demand relationships, and publisher network with NRS' screen network and first-party transaction data to create a more comprehensive and unified digital advertising offering.

Financing Activities

In March 2024, our Board of Directors initiated a quarterly cash dividend of $0.05 per share on our Class A and Class B common stock. In March 2025, our Board of Directors increased the quarterly cash dividend on our Class A and Class B common stock to $0.06 per share from $0.05 per share. In May 2026, our Board of Directors increased the quarterly cash dividend on our Class A and Class B common stock to $0.07 per share from $0.06 per share. In fiscal 2026 and fiscal 2025, we paid aggregate cash dividends per share of $0.26 and $0.22, respectively, on our Class A and Class B common stock. In fiscal 2026 and fiscal 2025, we paid aggregate cash dividends of $6.5 million and $5.6 million, respectively.

We distributed cash of $2.7 million and $0.1 million in fiscal 2026 and fiscal 2025, respectively, to the noncontrolling interests in certain of our subsidiaries.

IDT Telecom, Inc. (“IDT Telecom”), our subsidiary, maintains a revolving credit facility with TD Bank, N.A. The commitment under the facility was initially $25.0 million. Effective August 11, 2026, the facility, which was scheduled to mature on August 16, 2026, was amended to extend the maturity date to July 15, 2029. The amendment also increased the facility to provide additional seasonal borrowing capacity, raising the commitment to $50.0 million during the months of May and December of each year (from $25.0 million during all other months). IDT Telecom may use the proceeds to finance working capital requirements. The facility is secured by substantially all of our assets and bears interest at the term secured overnight financing rate plus 10 basis points, plus a margin of 125 to 175 basis points depending on IDT Telecom’s leverage ratio as of the most recently completed fiscal quarter. Interest is payable monthly, and all outstanding principal and accrued and unpaid interest is due upon the maturity date of the facility. IDT Telecom pays a quarterly unused commitment fee of 10 basis points on the average daily unused balance of the commitment. At July 31, 2026 and July 31, 2025, there were no amounts outstanding under this facility. During fiscal 2026 and fiscal 2025, IDT Telecom borrowed and repaid $21.4 million and $24.6 million, respectively, under this facility. IDT Telecom is required to comply with various affirmative and negative covenants and to maintain certain financial ratio targets during the term of the facility. As of July 31, 2026 and  July 31, 2025, IDT Telecom was in compliance with all such covenants.

In the first quarter of fiscal 2027 through September 29, 2026, IDT Telecom had no borrowings under the facility.

In fiscal 2026, employees exercised 5,204 stock options at a weighted-average exercise price of $38.43 per share, generating cash proceeds of $0.2 million. There were no stock option exercises in fiscal 2025.

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We have an existing stock repurchase program authorized by our Board of Directors for the repurchase of shares of our Class B common stock. In January 2016, the Board of Directors authorized the repurchase of up to 8.0 million shares in the aggregate. In fiscal 2026, we repurchased 421,938 shares of our Class B common stock for an aggregate purchase price of $21.0 million. In fiscal 2025, we repurchased 221,823 shares of our Class B common stock for an aggregate purchase price of $10.1 million. At July 31, 2026, 3.8 million shares remained available for repurchase under the stock repurchase program.

In fiscal 2026 and fiscal 2025, we paid $0.5 million and $7.7 million, respectively, to repurchase 10,852 and 157,180 shares, respectively, of our Class B common stock tendered by employees to satisfy tax withholding obligations arising from the vesting of deferred stock units (“DSUs”), the lapsing of restrictions on restricted stock, and the issuance of shares for bonus payments. Such shares were repurchased by us based on their fair market value as of the close of business on the trading day immediately prior to the vesting date.

In April 2025, we exchanged an aggregate of 8,589 shares of our Class B common stock with a value of $0.4 million for shares of NRS’ Class B common stock that were held by employees of NRS representing an aggregate of 0.09% of NRS’ outstanding shares.

Other Sources and Uses of Resources

From time to time, we consider spin-offs and other potential dispositions of certain of our subsidiaries. A spin-off may include the contribution of a significant amount of cash, cash equivalents, debt securities, and/or equity securities to the subsidiary prior to the spin-off, which would reduce our capital resources. There is no assurance that a transaction will be completed.

We intend to, where appropriate, make strategic investments and acquisitions to complement, expand, and/or enter into new businesses. In considering acquisitions and investments, we search for opportunities to profitably grow our existing businesses and/or to add qualitatively to the range and diversification of businesses in our portfolio. We cannot guarantee that we will be presented with acquisition opportunities that meet our return-on-investment criteria, or that our efforts to make acquisitions that meet our criteria will be successful.

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