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Equity Investments

9 Months Ended

Apr. 30, 2021

Cash and Cash Equivalents [Abstract]

Note 7—Equity Investments

Equity investments consist of the following:

Schedule of Equity Investments

	April 30, 2021		July 31, 2020
	(in thousands)
Zedge, Inc. Class B common stock, 42,282 shares at April 30, 2021 and July 31, 2020	$	562	$	59
Rafael Holdings, Inc. Class B common stock, 28,320 and 27,806 shares at April 30, 2021 and July 31, 2020, respectively		1,171		389
Rafael Holdings, Inc. restricted Class B common stock, 261,894 and nil shares at April 30, 2021 and July 31, 2020, respectively		10,827		—
Other marketable equity securities		1,956		—
Fixed income mutual funds		23,070		5,516
Current equity investments	$	37,586	$	5,964

Visa Inc. Series C Convertible Participating Preferred Stock (“Visa Series C Preferred”)	$	2,343	$	3,825
Visa Inc. Series A Convertible Participating Preferred Stock (“Visa Series A Preferred”)		2,920		—
Series B convertible preferred stock in equity method investment		3,472		—
Hedge funds		3,462		4,783
Other		2,725		225
Noncurrent equity investments	$	14,922	$	8,833

On June 1, 2016, the Company completed a pro rata distribution of the common stock that the Company held in the Company’s subsidiary Zedge, Inc. (“Zedge”) to the Company’s stockholders of record as of the close of business on May 26, 2016. Howard S. Jonas is the Vice-Chairman of the Board of Directors of Zedge. The Company received the Zedge Class B common shares and the unrestricted Rafael Class B common shares set forth in the table above in connection with the lapsing of restrictions on Zedge and Rafael restricted stock held by certain of the Company’s employees and the Company’s payment of taxes related thereto.

On December 7, 2020, the Company purchased from Rafael 218,245 newly issued shares of Rafael’s Class B common stock and a warrant to purchase up to 43,649 shares of Rafael’s Class B common stock at an exercise price of $22.91 at any time on or after December 7, 2020 and on or prior to June 6, 2022. The aggregate purchase price of $5.0 million was allocated $4.6 million to the shares and $0.4 million to the warrant based on their relative purchase date fair values. The fair value of the warrant on the acquisition date was estimated using a Black-Scholes valuation model that represented a Level 3 measurement. The purchase price was based on a per share price of $22.91, which was the closing price of Rafael’s Class B common stock on the New York Stock Exchange on the trading day immediately preceding the purchase date. On March 15, 2021, the Company exercised the warrant in full and purchased 43,649 shares of Rafael’s Class B common stock for cash of $1.0 million. At April 30, 2021, these 261,894 shares of Rafael’s Class B common stock were not available for sale, assignment, or transfer. These restrictions will lapse in June 2021 for 218,245 shares and September 2021 for 43,649 shares.

In June 2016, upon the acquisition of Visa Europe Limited by Visa, Inc. (“Visa”), IDT Financial Services Limited received 1,830 shares of Visa Series C Preferred among other consideration. At July 31, 2020, each share of Visa Series C Preferred was convertible into 13.722 shares of Visa Class A common stock (the “Conversion Adjustment), subject to certain conditions, and will be convertible at the holder’s option beginning in June 2028. On September 24, 2020, in connection with Visa’s first mandatory release assessment, the Company received 125 shares of Visa Series A Preferred and the Conversion Adjustment for Visa Series C Preferred was reduced to 6.861. The 125 shares of Visa Series A Preferred are convertible into 12,500 shares of Visa Class A common stock.

The changes in the carrying value of the Company’s equity investments without readily determinable fair values for which the Company elected the measurement alternative was as follows:

	2021			2020			2021			2020
	Three Months Ended April 30,						Nine Months Ended April 30,
	2021			2020			2021			2020
	(in thousands)
Balance, beginning of period	$	2,223		$	4,345		$	4,109		$	3,919
Redemption for Visa mandatory release assessment		—			—			(1,870	)		—
Adjustment for observable transactions involving a similar investment from the same issuer		404			(412	)		388			14
Redemptions		(6	)		—			(6	)		—
Impairments		—			—			—			—
Balance, end of the period	$	2,621		$	3,933		$	2,621		$	3,933

In the three months ended April 30, 2021 and the nine months ended April 30, 2021 and 2020, the Company increased the carrying value of the shares of Visa Series C Preferred it held by $0.4 million, $0.4 million, and $14,000, respectively, and in the three months ended April 30, 2020, the Company decreased the carrying value of the shares of Visa Series C Preferred it held by $0.4 million, based on the fair value of Visa Class A common stock and a discount for lack of current marketability.

Unrealized gains and losses for all equity investments included the following:

	2021		2020			2021		2020
	Three Months Ended April 30,					Nine Months Ended April 30,
	2021		2020			2021		2020
	(in thousands)
Net gains (losses) recognized during the period on equity investments	$	5,435	$	(1,226	)	$	5,822	$	(817	)
Less: net gains and losses recognized during the period on equity investments sold during the period		—		—			—		—
Unrealized gains (losses) recognized during the period on equity investments still held at the reporting date	$	5,435	$	(1,226	)	$	5,822	$	(817	)

Equity Method Investment

On February 2, 2021, the Company paid $4.0 million to purchase shares of series B convertible preferred stock of a communications company (the equity method investee, or “EMI”). The shares purchased represent 23.95% of the outstanding shares of the EMI on an as converted basis. The Company accounts for this investment using the equity method since the series B convertible preferred stock is in-substance common stock, and the Company can exercise significant influence over the operating and financial policies of the EMI.

The following table summarizes the change in the balance of the Company’s equity method investment:

	Nine Months Ended April 30,
	2021			2020
	(in thousands)
Balance, beginning of period	$	—		$	—
Purchase of series B convertible preferred stock		4,000			—
Equity in the net loss of investee		(386	)		—
Amortization of equity method basis difference		(142	)		—

Balance, end of period	$	3,472		$	—

The Company determined that on the date of the acquisition, there was a difference of $2.7 million between its investment in the EMI and its proportional interest in the equity of the EMI, which represented the Company’s share of the EMI’s customer list on the date of acquisition. This basis difference is being amortized over the 6-year estimated life of the customer list. In the accompanying consolidated statements of operations, amortization of equity method basis difference is included in the equity in the net loss of investee, which is recorded in “Other income (expense), net” (see Note 15).

Summarized unaudited statements of operations of the EMI from the date of acquisition was as follows:

	Three Months Ended April 30,
	2021			2020
	(in thousands)
Revenues	$	718		$	—
Costs and expenses:
Direct cost of revenues		804			—
Selling, general and administrative		1,525			—
Total costs and expenses		2,329			—
Loss from operations and net loss	$	(1,611	)	$	—