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Note 19 - Segment Reporting
 12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

 19. Segment Reporting: 

 

(a)  We are organized and managed based on three operating segments which are differentiated primarily by their services, the markets they serve and the regulatory environments in which they operate.  No operating segments have been aggregated to determine our reportable segments.

 

During the first quarter of 2021, the Company completed a reorganization of its reporting structure into three operating and reportable segments: Fiber Internet Services, Mobile Services and Domain Services. Previously, we disclosed two operating and reportable segments: Network Access Services and Domain Services.

 

The change to our reportable operating segments was the result of a shift in our business and management structures that was initiated in 2020 and completed during the first quarter of 2021. The operations supporting what was previously known as our Network Access Services segment have become increasingly operationally distinct between our mobile services (which includes both retail mobile MNVO based services and wholesale MSE services) and our fiber Internet services which were also included in our Network Access Services segment. As a result, commencing in the first quarter of 2021, our Chief Executive Officer ("CEO"), who is also our chief operating decision maker, reviews the operating results of Mobile Services and Fiber Internet Services as two distinct segments in order to make key operating decisions as well as evaluate segment performance. Certain corporate costs are excluded from segment EBITDA results as they are centrally managed and not monitored by or reported to our CEO by segment, including Finance, Human Resources, Legal, Corporate IT, depreciation and amortization expense or impairments, interest expense, stock-based compensation and other income and expense items not monitored as part of our segment operations. Our comparative period financial results have also been reclassified to reflect the reorganized segment structure. 

 

Our reportable operating segments and their principal activities consist of the following:

 

1.    Fiber Internet Services - This segment derives revenue from the retail high speed Internet access to individuals and small businesses primarily through the Ting website, and other revenues including billing solutions to small ISPs. Revenues are generated in the United States.    

 

2.     Mobile Services – This segment derives revenue from MSE platform services and professional services to wholesale customers. This segment also derives revenue from the retail sale of mobile phones, retail telephony services to individuals and small businesses primarily through the Ting website. Revenues are generated in the United States.     

 

3.    Domain Services – This segment includes wholesale and retail domain name registration services, value added services and portfolio services. The Company primarily earns revenues from the registration fees charged to resellers in connection with new, renewed and transferred domain name registrations; the sale of retail Internet domain name registration and email services to individuals and small businesses. Domain Services revenues are attributed to the country in which the contract originates, primarily Canada and the United States. 

 

Key measure of segment performance:

 

The Chief Executive Officer of Tucows Inc. ("CEO"), as the chief operating decision maker, regularly reviews the operations and performance by segment. The CEO reviews segment gross margin and adjusted EBITDA (as defined below) as (i) key measures of performance for each segment and (ii) to make decisions about the allocation of resources. 

 

During the first quarter of 2021, the Company changed its key measures of segment performance to segment gross margin and adjusted EBITDA. Previously, we disclosed one key measure of segment performance, gross profit.

 

The change to our key measures of segment performance was also a result of shift in our business and management structures that were completed in the first quarter of 2021, which created more distinction between the operations supporting each reportable operating segment. As a result, commencing in the first quarter of 2021, our CEO, who is also our chief operating decision maker now regularly reviews segment gross margin and segment adjusted EBITDA to evaluate segment performance and make key operating decisions.

 

The CEO is the chief operating decision maker and regularly reviews the operations and performance by segment. The CEO reviews gross profit as (i) a key measure of performance for each segment and (ii) to make decisions about the allocation of resources. Sales and marketing expenses, technical operations and development expenses, general and administrative expenses, depreciation of property and equipment, amortization of intangibles assets, impairment of indefinite life intangible assets, gain on currency forward contracts and other expense net are organized along functional lines and are not included in the measurement of segment profitability. Total assets and total liabilities are centrally managed and are not reviewed at the segment level by the CEO. The Company follows the same accounting policies for the segments as those described in “Note 2 – Significant Accounting Policies”, and “Note 10 – Revenue”.

 

Information by reportable segments (with the exception of disaggregated revenue, which is discussed in “Note 10 – Revenue”), which is regularly reported to the chief operating decision maker, and the reconciliations thereof to our income before taxes, are set out in the following tables (Dollar amounts in thousands of US dollars): 

 

For the Year Ended December 31, 2021

                    
  

Fiber Internet Services

  

Mobile Services

  

Domain Services

  

Corporate

  

Consolidated Totals

 

Net Revenues

 $26,445  $32,316  $245,576  $-  $304,337 

Direct cost of revenues

  12,120   13,431   167,488   -   193,039 

Segment Gross Margin

  14,325   18,885   78,088   -   111,298 
                     

Adjusted EBITDA

 $(13,835) $26,006  $50,236  $(13,586) $48,821 

 

For the Year Ended December 31, 2020

                    
  

Fiber Internet Services

  

Mobile Services

  

Domain Services

  

Corporate

  

Consolidated Totals

 

Net Revenues

 $18,428  $50,520  $242,254  $-  $311,202 

Direct cost of revenues

  6,982   25,968   167,451   -   200,401 

Segment Gross Margin

  11,446   24,552   74,803   -   110,801 
                     

Adjusted EBITDA

 $(4,020) $18,769  $48,057  $(11,834) $50,972 

 

For the Year Ended December 31, 2019

                    
  

Fiber Internet Services

  

Mobile Services

  

Domain Services

  

Corporate

  

Consolidated Totals

 

Net Revenues

 $11,006  $84,657  $241,482  $-  $337,145 

Direct cost of revenues

  3,928   44,415   169,236   -   217,579 

Segment Gross Margin

  7,078   40,242   72,246   -   119,566 
                     

Adjusted EBITDA

 $(3,986) $18,120  $47,544  $(9,773) $51,905 

 

Reconciliation of Adjusted EBITDA to Income before Provision for Income Taxes

 

Twelve months ended December 31,

 

(In Thousands of US Dollars)

 

2021

  

2020

  

2019

 

(unaudited)

 

(unaudited)

  

(unaudited)

  

(unaudited)

 
             

Adjusted EBITDA

 $48,821  $50,972  $51,905 

Depreciation of property and equipment

  17,986   12,632   8,961 

Impairment and loss on disposition of property and equipment

  435   1,621   73 

Amortization of intangible assets

  10,007   11,420   10,333 

Impairment of definite life intangible assets

  -   1,431   - 

Write-down on disposal of Ting Mobile customer assets

  -   3,513   - 

Interest expense, net

  4,617   3,611   4,769 

Accretion of contingent liability

  383   344   - 

Stock-based compensation

  4,592   3,718   2,876 

Unrealized loss (gain) on change in fair value of forward contracts

  606   (500)  (313)

Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities

  219   461   (581)

Acquisition and other costs1

  2,706   1,961   1,216 
             

Income before provision for income taxes

 $7,270  $10,760  $24,571 

 

1 Acquisition and other costs represents transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses, primarily related to our acquisition of Cedar in January 2020 and Simply Bits in November 2021 and the disposition of certain Ting Mobile assets in August 2020. Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments.

 

(b)           The following is a summary of the Company’s cost of revenues from each significant revenue stream (Dollar amounts in thousands of US dollars):

 

  

2021

  

2020

   2019 
             

Fiber Internet Services:

            

Fiber Internet Services

 $12,120  $6,982  $3,928 
             

Mobile Services:

            

Retail mobile services

  6,012   22,942   44,415 

Mobile platform services

  419   56   - 

Other professional services

  7,000   2,970   - 

Total Mobile

  13,431   25,968   44,415 
             

Domain Services:

            

Wholesale

            

Domain Services

  147,213   146,788   148,530 

Value Added Services

  2,544   3,016   2,986 

Total Wholesale

  149,757   149,804   151,516 
             

Retail

  17,731   17,647   17,720 

Total Domain Services

  167,488   167,451   169,236 
             

Network Expenses:

            

Network, other costs

  14,769   10,194   9,190 

Network, depreciation and amortization costs

  18,035   13,484   9,599 

Network, impairment

  201   1,638   - 

Total Network Expenses

  33,005   25,316   18,789 
             
  $226,044  $225,717  $236,368 

 

(c)           The following is a summary of the Company’s property and equipment by geographic region (Dollar amounts in thousands of US dollars): 

 

  

December 31, 2021

  

December 31, 2020

 
         

Canada

 $1,994  $2,521 

United States

  170,630   114,968 

Europe

  38   41 
  $172,662  $117,530 

 

(d)           The following is a summary of the Company’s amortizable intangible assets by geographic region (Dollar amounts in thousands of US dollars): 

 

  

December 31, 2021

  

December 31, 2020

 
         

Canada

 $1,386  $2,385 

United States

  36,732   32,767 
  $38,118  $35,152 

 

(e)           The following is a summary of the Company’s deferred tax asset, net of valuation allowance, by geographic region (Dollar amounts in thousands of US dollars): 

 

  

December 31, 2021

  

December 31, 2020

 
         

Canada

 $22  $- 

Germany

  -   226 
  $22  $226 

 

(f)           Valuation and qualifying accounts (Dollar amounts in thousands of US dollars):

 

Allowance for doubtful accounts

 

Balance at beginning of period

  

Charged to costs and expenses

  

Write-offs during period

  

Balance at end of period

 
                 

Year Ended December 31, 2021

 $222  $319  $-  $541 

Year Ended December 31, 2020

 $131  $91  $-  $222