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Equity Investments

6 Months Ended

Jan. 31, 2021

Equity Investments Disclosure [Abstract]

Note 7—Equity Investments

Equity investments consist of the following:

	January 31, 2021		July 31, 2020
	(in thousands)
Zedge, Inc. Class B common stock, 42,282 shares at January 31, 2021 and July 31, 2020	$	307	$	59
Rafael Holdings, Inc. Class B common stock, 28,320 and 27,806 shares at January 31, 2021 and July 31, 2020, respectively		665		389
Fixed income mutual funds		23,374		5,516
Current equity investments	$	24,346	$	5,964

Visa Inc. Series C Convertible Participating Preferred Stock (“Visa Series C Preferred”)	$	1,939	$	3,825
Visa Inc. Series A Convertible Participating Preferred Stock (“Visa Series A Preferred”)		2,416		—
Rafael Holdings, Inc. warrant		380		—
Hedge funds		3,481		4,783
Other		2,225		225
Noncurrent equity investments	$	10,441	$	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 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 represents 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 December 7, 2020. At January 31, 2021, these shares of Rafael’s Class B common stock and the warrant were not available for sale, assignment, or transfer. The value of the shares at January 31, 2021 of $5.1 million was included in “Other current assets” in the consolidated balance sheets.

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:

	Three Months Ended January 31,				Six Months Ended January 31,
	2021		2020		2021			2020
	(in thousands)
Balance, beginning of period	$	2,109	$	3,937	$	4,109		$	3,919
Redemption for Visa mandatory release assessment		—		—		(1,870	)		—
Adjustment for observable transactions involving a similar investment from the same issuer		114		408		(16	)		426
Impairments		—		—		—			—
Balance, end of the period	$	2,223	$	4,345	$	2,223		$	4,345

In the three months ended January 31, 2021 and the three and six months ended January 31, 2020, the Company increased the carrying value of the shares of Visa Series C Preferred it held by $0.1 million, $0.4 million, and $0.4 million, respectively, and in the six months ended January 31, 2021, the Company decreased the carrying value of the shares of Visa Series C Preferred it held by $16,000, based on the fair value of Visa Class A common stock and a discount for lack of current marketability.

Unrealized gains for all equity investments included the following:

	Three Months Ended January 31,				Six Months Ended January 31,
	2021		2020		2021		2020
	(in thousands)
Net gains recognized during the period on equity investments	$	1,307	$	383	$	387	$	409
Less: net gains and losses recognized during the period on equity investments sold during the period		—		—		—		—
Unrealized gains recognized during the period on equity investments still held at the reporting date	$	1,307	$	383	$	387	$	409

Subsequent Event—MarketSpark, Inc.

On February 2, 2021, the Company paid $4.0 million to purchase shares of MarketSpark, Inc. Series B Convertible Preferred Stock representing 23.95% of the outstanding shares of MarketSpark on an as converted basis. MarketSpark, which is based in San Diego, California, replaces telephone lines in commercial buildings, such as the ones used in fire panels, elevators, emergency phone lines, point-of-sale terminals, and fax lines, with cellular connections.