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Equity Investments

6 Months Ended

Jan. 31, 2023

Investments, Debt and Equity Securities [Abstract]

Note 7—Equity Investments

Equity investments consist of the following:

Schedule of Equity Investments


	January 31, 2023		July 31, 2022
	(in thousands)
Zedge, Inc. Class B common stock, 42,282 shares at January 31, 2023 and July 31, 2022	$	93	$	117
Rafael Holdings, Inc. Class B common stock, 278,810 and 290,214 shares at January 31, 2023 and July 31, 2022, respectively		574		586
Other marketable equity securities		1,872		4,089
Fixed income mutual funds		6,674		12,299
Current equity investments	$	9,213	$	17,091

Visa Inc. Series C Convertible Participating Preferred Stock (“Visa Series C Preferred”)	$	1,225	$	1,132
Visa Inc. Series A Convertible Participating Preferred Stock (“Visa Series A Preferred”)		—		1,230
Series B and Series C convertible preferred stock—equity method investment		—		1,001
Hedge funds		3,137		3,238
Other		2,325		825
Noncurrent equity investments	$	6,687	$	7,426

The Company received the shares of Zedge, Inc. (“Zedge”) Class B common stock and 28,320 of the shares of Rafael Class B common stock 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 on behalf of its employees related thereto. The Company purchased 261,894 shares of Rafael Class B common stock in fiscal 2021. The Company sold 11,404 shares of Rafael Class B common stock in November 2022. Howard S. Jonas is the Vice-Chairman of the Board of Directors of Zedge.

On July 28, 2022, in connection with Visa Inc.’s second mandatory release assessment, the Company received 58 shares of Visa Series A Preferred and the conversion adjustment for Visa Series C Preferred was reduced to 3.645. In August 2022, the 58 shares of Visa Series A Preferred were converted into 5,800 shares of Visa Class A common stock, which the Company sold for $1.3 million.

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:


	Three Months Ended January 31,				Six Months Ended January 31,
	2023		2022		2023		2022
	(in thousands)
Balance, beginning of period	$	1,374	$	2,397	$	1,401	$	2,743
Adjustment for observable transactions involving a similar investment from the same issuer		120		142		93		(204	)
Impairments		—		—		—		—

Balance, end of the period	$	1,494	$	2,539	$	1,494	$	2,539

The Company increased the carrying value of the shares of Visa Series C Preferred it held by $0.1 million in each of the three months ended January 31, 2023 and 2022 and in the six months ended January 31, 2023, and the Company decreased the carrying value of the shares of Visa Series C Preferred it held by $0.2 million in the six months ended January 31, 2022, based on the fair value of Visa Class A common stock, including a discount for lack of current marketability.

Unrealized gains and losses for all equity investments measured at fair value included the following:


	Three Months Ended January 31,						Six Months Ended January 31,
	2023			2022			2023			2022
	(in thousands)
Net losses recognized during the period on equity investments	$	(228	)	$	(2,952	)	$	(2,169	)	$	(17,446	)
Less: net gains recognized during the period on equity investments sold during the period		22			25			18			10

Unrealized losses recognized during the period on equity investments still held at the reporting date	$	(250	)	$	(2,977	)	$	(2,187	)	$	(17,456	)

The unrealized gains and losses for all equity investments measured at fair value in the table above included the following:


	Three Months Ended January 31,						Six Months Ended January 31,
	2023			2022			2023			2022
	(in thousands)
Unrealized gains (losses) recognized during the period on equity investments:

Rafael Class B common stock	$	82		$	(993	)	$	9		$	(13,486	)

Zedge Class B common stock	$	3		$	(168	)	$	(24	)	$	(330	)
Unrealized losses recognized during the period on equity investments still held at the reporting date	$	(250	)	$	(2,977	)	$	(2,187	)	$	(17,456	)

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”), and on August 10, 2021, the Company paid $1.1 million to purchase shares of the EMI’s series C convertible preferred stock and additional shares of the EMI’s series B convertible preferred stock. The initial shares purchased represented 23.95% of the outstanding shares of the EMI on an as converted basis. The subsequent purchases increased the Company’s ownership to 26.57% on an as converted basis.

The Company accounts for this investment using the equity method since the series B and series C convertible preferred stock are in-substance common stock, and the Company can exercise significant influence over the operating and financial policies of the EMI.

The Company determined that on the dates of the acquisitions, there were differences of $3.4 million and $1.0 million between its investment in the EMI and its proportional interest in the equity of the EMI, which represented the share of the EMI’s customer list on the dates of the acquisitions attributed to the Company’s interest in the EMI. These basis differences are being amortized over the 6-year estimated life of the customer list. In the accompanying consolidated statements of income, 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 17).

As of January 31, 2023 and July 31, 2022, the Company was the holder of secured promissory notes made by the EMI in exchange for loans of an aggregate of $3.7 million and $2.5 million, respectively. The notes provide for interest on the principal amount at 15% per annum payable monthly. The notes were due and payable in February 2023. The Company, the EMI, and the EMI’s other lenders are in the process of converting all the EMI’s equity and promissory notes into new shares of the EMI’s participating preferred stock. As of January 31, 2023 and July 31, 2022, the notes were included in “Other current assets” in the accompanying consolidated balance sheets.

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


	Three Months Ended January 31,						Six Months Ended January 31,
	2023			2022			2023			2022
	(in thousands)
Balance, beginning of period	$	349		$	3,329		$	1,001		$	2,901
Purchase of convertible preferred stock		—			—			—			1,051
Equity in the net loss of investee		(542	)		(639	)		(1,012	)		(1,080	)
Amortization of equity method basis difference		(181	)		(181	)		(363	)		(363	)

Balance, end of the period	$	(374	)	$	2,509		$	(374	)	$	2,509

As of January 31, 2023, the balance of the Company’s investment in the EMI was included in “Other current liabilities” in the accompanying consolidated balance sheet.

Summarized financial information of the EMI was as follows:

Summary of Statements of Operations


	Three Months Ended January 31,						Six Months Ended January 31,
	2023			2022			2023			2022
	(in thousands)

Revenues	$	1,818		$	1,380		$	3,691		$	3,071
Costs and expenses:
Direct cost of revenues		1,535			1,443			3,228			2,905
Selling, general and administrative		1,772			774			3,408			2,663

Total costs and expenses		3,307			2,217			6,636			5,568

Loss from operations		(1,489	)		(837	)		(2,945	)		(2,497	)
Other expense		(498	)		—			(842	)		(1	)

Net loss	$	(1,987	)	$	(837	)	$	(3,787	)	$	(2,498	)