Equity Investments

9 Months Ended

Apr. 30, 2022

Cash and Cash Equivalents [Abstract]

Equity Investments

Note 7—Equity Investments

Equity investments consist of the following:

	April 30, 2022		July 31, 2021
	(in thousands)
Zedge, Inc. Class B common stock, 42,282 shares at April 30, 2022 and July 31, 2021	$	217	$	649
Rafael Holdings, Inc. Class B common stock, 290,214 and 246,565 shares at April 30, 2022 and July 31, 2021, respectively		624		12,479
Rafael Holdings, Inc. restricted Class B common stock, nil and 43,649 shares at April 30, 2022 and July 31, 2021, respectively		—		2,209
Other marketable equity securities		3,048		3,630
Fixed income mutual funds		12,290		23,467
Current equity investments	$	16,179	$	42,434
Visa Inc. Series C Convertible Participating Preferred Stock (“Visa Series C Preferred”)	$	2,131	$	2,465
Series B and Series C convertible preferred stock—equity method investment		1,744		2,901
Hedge funds		2,619		3,563
Other		825		2,725
Noncurrent equity investments	$	7,319	$	11,654

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 related thereto. The Company purchased 261,894 shares of Rafael Class B common stock in fiscal 2021, including 43,649 shares that were not available for sale, assignment, or transfer until the restrictions lapsed in September 2021. Howard S. Jonas is the Vice-Chairman of the Board of Directors of Zedge.

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 April 30,						Nine Months Ended April 30,
	2022			2021			2022			2021
	(in thousands)
Balance, beginning of period	$	2,539		$	2,223		$	2,743		$	4,109
Redemption for Visa mandatory release assessment		—			—			—			(1,870	)
Adjustment for observable transactions involving a similar investment from the same issuer		(130	)		404			(334	)		388
Redemptions		—			(6	)		—			(6	)
Impairments		—			—			—			—
Balance, end of the period	$	2,409		$	2,621		$	2,409		$	2,621

The Company decreased the carrying value of the shares of Visa Series C Preferred it held by $0.1 million and $0.3 million in the three and nine months ended April 30, 2022, respectively, and the Company increased the carrying value of the shares of Visa Series C Preferred it held by $0.4 million in both the three and nine months ended April 30, 2021, 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:

	Three Months Ended April 30,					Nine Months Ended April 30,
	2022			2021		2022			2021
	(in thousands)
Net (losses) gains recognized during the period on equity investments	$	(3,416	)	$	5,435	$	(20,862	)	$	5,822
Less: net gains recognized during the period on equity investments sold during the period		—			—		10			—
Unrealized (losses) gains recognized during the period on equity investments still held at the reporting date	$	(3,416	)	$	5,435	$	(20,872	)	$	5,822

The net losses on investments in the three and nine months ended April 30, 2022 included unrealized losses of $0.6 million and $14.1 million, respectively, on shares of Rafael Class B common stock. The net gains on investments in the three and nine months ended April 30, 2021 included unrealized gains of $4.8 million and $5.6 million, respectively, on shares of Rafael Class B common stock.

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, the amortization of equity method basis difference is included in the equity in the net loss of investee, which is recorded in “Other (expense) income, net” (see Note 18).

On February 10, 2022, the Company received a secured promissory note from the EMI in exchange for a loan of $1.0 million. The note provides for interest on the principal amount at 15% per annum payable monthly. The note is due and payable on August 3, 2022.

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

	Three Months Ended April 30,						Nine Months Ended April 30,
	2022			2021			2022			2021
	(in thousands)
Balance, beginning of period	$	2,509		$	—		$	2,901		$	—
Purchase of convertible preferred stock		—			4,000			1,051			4,000
Equity in the net loss of investee		(583	)		(386	)		(1,662	)		(386	)
Amortization of equity method basis difference		(182	)		(142	)		(546	)		(142	)
Balance, end of the period	$	1,744		$	3,472		$	1,744		$	3,472

Summarized financial information of the EMI was as follows (fiscal 2021 financial information is for the period from February 2, 2021 to April 30, 2021):

	Three Months Ended April 30,						Nine Months Ended April 30,
	2022			2021			2022			2021
	(in thousands)
Revenues	$	2,689		$	718		$	5,760		$	718
Costs and expenses:
Direct cost of revenues		4,402			804			7,307			804
Selling, general and administrative		1,265			1,525			3,928			1,525
Total costs and expenses		5,667			2,329			11,235			2,329
Loss from operations		(2,978	)		(1,611	)		(5,475	)		(1,611	)
Other expense		(82	)		—			(83	)		—
Net loss	$	(3,060	)	$	(1,611	)	$	(5,558	)	$	(1,611	)