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Stock-Based Compensation
 12 Months Ended
Jul. 31, 2024
Share-Based Payment Arrangement [Abstract]  
Stock-Based Compensation

Note 21—Stock-Based Compensation

 

2024 Equity Incentive Plan

 

On December 13, 2023, the Company’s stockholders approved the adoption of the Company’s 2024 Equity Incentive Plan (the “2024 Plan”), which is intended to provide incentives to officers, employees, directors, and consultants of the Company, including stock options, stock appreciation rights, DSUs, and restricted stock, from and after September 16, 2024. At July 31, 2024, the Company had 250,000 shares of Class B common stock reserved for the grant of awards under the 2024 Plan, all of which were available for future grants.

 

2015 Stock Option and Incentive Plan

 

The 2015 Stock Option and Incentive Plan (the “2015 Plan”) was intended to provide incentives to officers, employees, directors, and consultants of the Company, including stock options, stock appreciation rights, limited rights, DSUs, and restricted stock. The 2015 Plan expired on September 16, 2024. In fiscal 2024, fiscal 2023, and fiscal 2022, the Company’s stockholders approved amendments to the 2015 Plan to increase the number of shares of the Company’s Class B common stock available for the grant of awards thereunder by an additional 250,000; 50,000; and 175,000 shares, respectively.

 

Stock Options

 

Option awards have generally been granted with an exercise price equal to the market price of the Company’s stock on the date of grant. Option awards generally vest on a graded basis over three years of service and had ten-year contractual terms. No option awards were granted in fiscal 2024, fiscal 2023, or fiscal 2022. When issued, the fair value of stock options is estimated on the date of the grant using a Black-Scholes valuation model. Expected volatility is based on historical volatility of the Company’s Class B common stock and other factors. The Company uses historical data on exercise of stock options, post vesting forfeitures and other factors to estimate the expected term of the stock-based payments granted. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.

 

 

A summary of stock option activity for the Company is as follows:

 

  

Number of

Options (in

thousands)

  

Weighted-

Average

Exercise Price

  

Weighted-

Average

Remaining

Contractual

Term (in years)

  

Aggregate

Intrinsic Value

(in thousands)

 
Outstanding at July 31, 2023   12   $13.72           
Granted   —    —           
Exercised   (12)   (13.72)          
Cancelled / Forfeited   —    —           
OUTSTANDING AT JULY 31, 2024   —   $—    —   $— 
EXERCISABLE AT JULY 31, 2024   —   $—    —   $— 

 

In fiscal 2024, fiscal 2023, and fiscal 2022, the Company received cash from the exercise of stock options of $0.2 million, $0.2 million, and $0.1 million, respectively, for which the Company issued 12,500; 12,500; and 10,000 shares, respectively, of its Class B common stock. In addition, in April 2022, Howard S. Jonas exercised stock options for 1.0 million shares of the Company’s Class B common stock that were granted on May 2, 2017. The exercise price of these options was $14.93 per share and the expiration date was May 1, 2022. Mr. Jonas used 528,635 shares of the Company’s Class B common stock with a value of $14.9 million to pay the aggregate exercise price of the options. Mr. Jonas tendered 137,364 shares of the Company’s Class B common stock with a value of $3.9 million to satisfy a portion of his tax obligations in connection with his stock option exercises.

 

The total intrinsic value of options exercised during fiscal 2024, fiscal 2023, and fiscal 2022 was $0.1 million, $0.2 million, and $19.7 million, respectively. At July 31, 2024, there was no unrecognized compensation cost related to non-vested stock options.

 

Restricted Stock

 

The fair value of restricted shares of the Company’s Class B common stock is determined based on the closing price of the Company’s Class B common stock on the grant date. Share awards generally vest on a graded basis over three years of service.

 

A summary of the status of the Company’s grants of restricted shares of Class B common stock is presented below:

 

  

Number of

Non-vested

Shares

(in thousands)

  

Weighted-

Average

Grant-

Date Fair

Value

 
Non-vested restricted shares at July 31, 2023   25   $19.09 
Granted   25    34.92 
Vested   (18)   (37.33)
Forfeited   (1)   (31.80)
NON-VESTED RESTRICTED SHARES AT JULY 31, 2024   31   $21.50 

 

There are 24,000 non-vested restricted shares at July 31, 2024 included in the table above that will vest on February 25, 2025 only if the Company’s Class B common stock closes above $50 per share for ten consecutive trading days prior to February 25, 2025, otherwise the 24,000 restricted shares will be forfeited.

 

At July 31, 2024, there was $0.3 million of total unrecognized compensation cost related to non-vested restricted shares, which is expected to be recognized over a weighted-average period of 0.9 years. The total grant date fair value of shares vested in fiscal 2024, fiscal 2023, and fiscal 2022 was $0.7 million, $0.5 million, and $1.0 million, respectively.

 

Deferred Stock Units Equity Incentive Programs

 

On November 30, 2022, the Company adopted an equity incentive program (under the 2015 Plan) in the form of grants of DSUs that, upon vesting, will entitle the grantees to receive shares of the Company’s Class B common stock. The number of shares that will be issuable on each vesting date will vary between 50% to 200% of the number of DSUs that vest on that vesting date, depending on the market price for the underlying Class B common stock on the vesting date relative to the base price approved by the Compensation Committee of the Company’s Board of Directors of $25.45 per share (which was based on the market price at the time of the initial grants under this program). On February 21, 2024 and on May 17, 2023, in accordance with the program and based on certain elections made by grantees, the Company issued 53,706 and 41,945 shares, respectively, of its Class B common stock for vested DSUs. Subject to continued full time employment or other services to the Company, the remaining 147,540 DSUs are scheduled to vest on February 25, 2025, the final vesting date under the program. The Company estimated that the fair value of the DSUs on the date of grants was an aggregate of $5.4 million, which is being recognized on a graded vesting basis over the requisite service periods ending in February 2025. The Company used a risk neutral Monte Carlo simulation method in its valuation of the DSUs, which simulated the range of possible future values of the Company’s Class B common stock over the life of the DSUs.

 

 

The Company had a prior equity incentive program in the form of DSUs that, upon vesting, entitled the grantees to receive shares of the Company’s Class B common stock. On January 5, 2022, the Company issued 301,296 shares of its Class B common stock in respect of vested DSUs.

 

Effective as of September 21, 2020, the Company granted 4,000 DSUs that were not included in the program described above, which upon vesting, entitled the grantee to receive shares of the Company’s Class B common stock. In fiscal 2024, fiscal 2023, and fiscal 2022, the Company issued 1,333, 1,333, and 1,334 shares, respectively, of its Class B common stock in respect of the vesting of these DSUs.

 

A summary of the status of the Company’s grants of DSUs is presented below:

 

  

Number of

Non-vested

DSUs

(in thousands)

  

Weighted-

Average

Grant-

Date Fair

Value

 
Non-vested shares at July 31, 2023   165   $27.38 
Granted   25    33.64 
Vested   (40)   (26.03)
Forfeited   (2)   (28.67)
NON-VESTED SHARES AT JULY 31, 2024   148   $28.79 

 

At July 31, 2024, there was $0.6 million of total unrecognized compensation cost related to non-vested DSUs, which is expected to be recognized over a weighted-average period of 0.4 years. The total grant date fair value of DSUs vested in fiscal 2024, fiscal 2023, and fiscal 2022 was $1.1 million, $0.9 million, and $1.6 million, respectively.

 

Amended and Restated Employment Agreement with Abilio (“Bill”) Pereira

 

On December 21, 2023, the Company entered into an Amended and Restated Employment Agreement with Bill Pereira, the Company’s President and Chief Operating Officer. The agreement provides for, among other things, certain equity grants, including 23,500 DSUs that, upon vesting, represent the right to receive shares of the Company’s Class B common stock (which are included in the DSU table above), and 50,000 shares of Class B common stock of net2phone 2.0, as well as a contingent bonus subject to the completion of certain financial milestones as set forth in the agreement. In fiscal 2024, two of these milestones were achieved, for which the Company issued to Mr. Pereira 39,155 shares of its Class B common stock in fiscal 2024 with an issue date value of $1.5 million, and the Company will issue an additional 39,155 shares of its Class B common stock in the first quarter of fiscal 2025. In fiscal 2024, the Company recorded aggregate stock-based compensation expense of $4.1 million related to these equity grants and the contingent bonus, which is included in “Selling, general and administrative expense” in the accompanying consolidated statements of income.

 

Stock Issued to an Employee

 

In fiscal 2023, the Company granted 15,000 shares of its Class B common stock to an employee. The Company recorded stock-based compensation expense and an increase in “Additional paid-in capital” of $0.4 million for this grant, which was the fair value of the shares on the grant date.

 

NRS Restricted Common Stock

 

Effective as of June 30, 2022, restricted shares of NRS’ Class B common stock representing 1.2% of its outstanding capital stock on a fully diluted basis were granted to certain NRS employees. The restrictions on the shares will lapse in three installments, the first was on June 1, 2024, and the others are June 1, 2026, and June 1, 2027. The estimated fair value of the restricted shares on the grant date was $3.3 million, which is being recognized over the vesting period. At July 31, 2024, unrecognized compensation cost related to NRS’ non-vested Class B common stock was an aggregate of $1.9 million. The unrecognized compensation cost is expected to be recognized over the remaining vesting period that ends in fiscal 2027.

 

In connection with the vesting of the restricted shares of NRS Class B common stock on June 1, 2024, the Company repurchased a portion of the shares representing an aggregate of 0.17% of the outstanding shares of NRS with an aggregate fair value of $0.6 million to satisfy the grantees’ tax withholding obligations in connection with the lapsing of restrictions on restricted stock. The fair value per share of the NRS Class B common stock was based on a valuation of the total equity of NRS using a market approach and income approach. The Company recorded a decrease in “Noncontrolling interests” of $21,000 and a decrease in “Additional paid-in capital” of $0.6 million, and an offsetting income tax withholding liability of $0.6 million.

 

 

In February 2022, restricted shares of NRS’ Class B common stock representing 0.4% of its outstanding capital stock on a fully diluted basis were granted to certain employees of the Company for services provided. The Company recorded stock-based compensation expense and an increase in “Additional paid-in capital” of $1.2 million for these grants, based on the estimated fair value on the grant date.

 

net2phone 2.0, Inc. Restricted Common Stock

 

On December 31, 2020, a compensatory arrangement with each of Howard S. Jonas and Shmuel Jonas, the Company’s Chief Executive Officer, was finalized. Howard S. Jonas and Shmuel Jonas each received 0.5 million restricted shares of net2phone 2.0’s Class B common stock, which represented an aggregate of 10% of net2phone 2.0’s issued and outstanding common stock at the time of the grant. The shares entitle each grantee to proceeds only on a sale, spin-off, initial public offering, or other monetization of net2phone 2.0 and have protection from dilution for the first $15 million invested in net2phone 2.0 following the grant. In January 2024, the restrictions lapsed on these restricted shares. In addition, in January 2024, Bill Pereira was granted 50,000 shares of net2phone 2.0 Class B common stock in connection with the agreement described above. The Company repurchased a portion of these shares representing an aggregate of 4.5% of the outstanding shares of net2phone 2.0 with an aggregate fair value of $3.6 million to satisfy the grantees’ tax withholding obligations in connection with the lapsing of restrictions on restricted stock or the grant of shares. The fair value per share of the net2phone 2.0 Class B common stock was based on a valuation of the business enterprise using a market approach and income approach. The Company recorded an increase in “Noncontrolling interests” of $53,000 and a decrease in “Additional paid-in capital” of $3.61 million, and an offsetting income tax withholding liability of $3.6 million.