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Note 13 - Segment Reporting
 6 Months Ended
Jun. 30, 2022
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

13. Segment Reporting: 

 

Reportable operating segments:

 

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 2022, the Company completed a reorganization of its reporting structure into three operating and reportable segments: Fiber Internet Services, Platform Services and Domain Services. Previously, the Company disclosed the three operating and reportable segments: Fiber Internet Services, Mobile Services and Domain Services. The retail portion of the previously disclosed Mobile Services, including the earn-out of the sale of legacy subscribers are now included within Corporate and ISP platform revenues and related results previously included within the Fiber Internet Services are now included within Platform Services.  

 

The change to our reportable operating segments was the result of a shift in our business and management structures that was completed during the first quarter of 2022. The operations supporting what was previously known as our Mobile Services segment have become increasingly operationally distinct between our mobile retail services and our platform services.  As a result, commencing in the first quarter of 2022, our Chief Executive Officer ("CEO"), who is also our chief operating decision maker, reviews the operating results of Fiber Internet Services, Platform Services and Domains Services as three distinct segments in order to make key operating decisions as well as evaluate segment performance. Certain revenues and expenses disclosed under the Corporate category are excluded from segment EBITDA results as they are centrally managed and not monitored by or reported to our CEO by segment, including Mobile Retail Services, eliminations of intercompany transactions, portions of Finance and Human Resources that are centrally managed, Legal and Corporate IT.

 

 

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.  Revenues are generated in the United States.

    

2.     Platform Services – This segment derives revenue from platform and other professional services related to communication service providers, including Mobile Network Operators and Internet Service Providers, and are primarily 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. 

 

Our segmented results include shared services allocations, including a profit margin, from Corporate for Finance, Human Resources and other technical services, to the operating units.  In addition, Platform Services charges Fiber Internet Services a subscriber based monthly charge services rendered. Financial impacts from these allocations and cross segment charges are eliminated as part of the Corporate results. 

 

Key measure of segment performance:

 

The CEO, as the chief operating decision maker, regularly reviews the operations and performance by segment. The CEO reviews segment revenue, 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.   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 and methods of application as described in the "2021 Annual Report" for the segments as those described in “Note 10 – Revenue”.

 

Our key measures of segment performance and their definitions are:

 

1.     Segment gross margin - Net revenues less Direct cost of revenues attributable to each segment.  

 

2.     Segment adjusted EBITDA - segment gross margin as well as the recurring gain on sale of Ting Customer Assets, less network expenses and certain operating expenses attributable to each segment, such as sales and marketing, technical operations and development, general and administration expenses but excludes gains and losses from unrealized foreign currency, stock-based compensation and transactions that are one-time in nature and not indicative of on-going performance, including acquisition and transition costs. Certain revenues and expenses disclosed under the Corporate category are excluded from segment EBITDA results as they are centrally managed and not monitored by or reported to our CEO by segment, including Mobile Retail Services, eliminations of intercompany transactions, portions of Finance and Human Resources that are centrally managed, Legal and Corporate IT.

 

Our comparative period financial results have also been reclassified to reflect the current key measures of segment performance. 

 

The Company believes that both segment gross margin and adjusted EBITDA measures are important indicators of the operational strength and performance of its segments, by identifying those items that are not directly a reflection of each segment’s performance or indicative of ongoing operational and profitability trends.  Segment gross margin and segment adjusted EBITDA both exclude depreciation of property and equipment, amortization of intangibles assets, impairment of indefinite life intangible assets that are included in the measurement of income before provision for income taxes pursuant to generally accepted accounting principles ("GAAP").  Accordingly, adjusted EBITDA should be considered in addition to, but not as a substitute for net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. 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 and methods of application as described in the "2021 Annual Report" for the segments as those described in “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): 

 

Reconciliation of Adjusted EBITDA to Income before Provision for Income Taxes

 

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(In Thousands of US Dollars)

 

2022

  

2021

  

2022

  

2021

 

(unaudited)

 

(unaudited)

  

(unaudited)

  

(unaudited)

  

(unaudited)

 
                 

Adjusted EBITDA

 $11,700  $11,158  $23,012  $23,881 

Depreciation of property and equipment

  6,735   4,211   12,778   7,970 

Impairment and loss on disposition of property and equipment

  95   6   507   66 

Amortization of intangible assets

  2,843   2,346   5,686   4,965 

Interest expense, net

  2,422   1,003   4,217   1,939 

Accretion of contingent consideration

  50   95   148   191 

Stock-based compensation

  1,436   1,209   2,828   2,231 

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

  -   191   -   357 

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

  46   42   100   106 

Acquisition and other costs1

  460   367   1,076   1,136 
                 

Income before provision for income taxes

 $(2,387) $1,688  $(4,328) $4,920 

1 Acquisition and other costs represent transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses, primarily related to our acquisitions, including Simply Bits in November 2021. Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments.

 

  

Fiber Internet Services

  

Platform Services

  

Domain Services

  

Corporate

  

Consolidated Totals

 

For the Three Months Ended June 30, 2022

                    
                     

Net Revenues

 $10,221  $8,970  $61,063  $2,830  $83,084 

Direct cost of revenues

  4,417   1,058   41,100   2,725   49,300 

Segment Gross Margin

  5,804   7,912   19,963   105   33,784 
                     

Adjusted EBITDA

 $(6,185) $3,872  $12,107  $1,906  $11,700 

 

  

Fiber Internet Services

  

Platform Services

  

Domain Services

  

Corporate

  

Consolidated Totals

 

For the Three Months Ended June 30, 2021

                    
                     

Net Revenues

 $5,548  $2,734  $62,262  $4,549  $75,093 

Direct cost of revenues

 

3,006

  

113

  

42,787

  

3,227

  

49,133

 

Segment Gross Margin

 

2,542

  

2,621

  

19,475

  

1,322

  

25,960

 
                     

Adjusted EBITDA

 $(4,590) $724  $12,122  $2,902  $11,158 

 

  

Fiber Internet Services

  

Platform Services

  

Domain Services

  

Corporate

  

Consolidated Totals

 

For the Six Months Ended June 30, 2022

                    
                     

Net Revenues

 $20,009  $15,817  $122,609  $5,748  $164,183 

Direct cost of revenues

  8,455   2,019   82,912   5,335   98,721 

Segment Gross Margin

  11,554   13,798   39,697   413   65,462 
                     

Adjusted EBITDA

 $(10,505) $5,919  $23,881  $3,717  $23,012 

 

  

Fiber Internet Services

  

Platform Services

  

Domain Services

  

Corporate

  

Consolidated Totals

 

For the Six Months Ended June 30, 2021

                    
                     

Net Revenues

 $10,630  $3,372  $123,486  $8,480  $145,968 

Direct cost of revenues

  5,613   198   83,561   5,948   95,320 

Segment Gross Margin

  5,017   3,174   39,925   2,532   50,648 
                     

Adjusted EBITDA

 $(8,517) $(356) $25,318  $7,436  $23,881 

 

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

 

  June 30, 2022  December 31, 2021 
         

Canada

 $1,523  $1,994 

United States

  223,642   170,630 

Europe

  37   38 
  $225,202  $172,662 

 

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

 

  June 30, 2022  December 31, 2021 
         

Canada

 $3,512  $1,386 

United States

  29,037   36,732 
  $32,549  $38,118 

 

 

(d)           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

 
                 

Six Months Ended June 30, 2022

 $541  $152  $-  $693 

Twelve months ended December 31, 2021

 $222  $319  $-  $541