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Note 10 - Revenue
 12 Months Ended
Dec. 31, 2022
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]

10. Revenue:

 

Significant accounting policy

 

The Company’s revenues are derived from (a) the provisioning of retail fiber Internet services through Ting, (b) the CSP solutions and professional services through Wavelo; and from (c) domain name registration contracts, other domain related value-added services, domain sale contracts, and other advertising revenue through Tucows Domains Services. Certain revenues are disclosed under Tucows Corporate as they are considered non-core business activities including Mobile Retail Services, Transition Services Agreement ("TSA") revenue and eliminations of intercompany revenue. Amounts received in advance of meeting the revenue recognition criteria described below are recorded as deferred revenue. All products are generally sold without the right of return or refund.

 

Revenue is measured based on consideration specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

 

In the third quarter of 2022, the Company renamed its three operating and reportable segments to reflect their branded names: Ting, Wavelo and Tucows Domains, previously called Fiber Internet Services, Platform Services and Domain Services, respectively. There were no changes to the activities or financial results attributed to each segment.

 

Nature of goods and services

 

The following is a description of principal activities – separated by reportable segments – from which the Company generates its revenue. For more detailed information about reportable segments. See Note 20 – Segment Reporting for more information.

 

 

(a)

Ting

 

The Company generates Ting revenues primarily through the provisioning of fixed high-speed Internet access, Ting Internet.

 

Ting Internet contracts provide customers Internet access at their home or business through the installation and use of our fiber optic network. Ting Internet contracts are generally prepaid and grant customers with unlimited bandwidth based on a fixed price per month basis. Because consideration is collected before the service period, revenue is initially deferred and recognized as the Company performs its obligation to provide Internet access. Though the Company does not consider the installation of fixed Internet access to be a distinct performance obligation, the fees related to installation are immaterial and therefore revenue is recognized as billed.

 

Ting Internet access services are primarily contracted through the Ting website, for one month at a time and contain no commitment to renew the contract following each customer’s monthly billing cycle. The Company’s billing cycle for all Ting Internet customers is computed based on the customer’s activation date. In addition, revenues associated with the sale of Internet hardware to subscribers are recognized when title and risk of loss is transferred to the subscriber and shipment has occurred. Incentive marketing credits given to customers are recorded as a reduction of revenue.

 

In those cases, where payment is not received at the time of sale, revenue is not recognized at contract inception unless the collection of the related accounts receivable is reasonably assured. The Company records costs that reflect expected refunds, rebates and credit card charge-backs as a reduction of revenues at the time of the sale based on historical experiences and current expectations.

 

 

(b)

Wavelo

 

The Company generates Wavelo revenues by providing billing and provisioning platform services to Communication Service Providers ("CSPs") to whom we also provide other professional services.

 

Platform service agreements contain both platform services and professional services. Platform services offer a variety of solutions that support CSPs, including subscription and billing management, network orchestration and provisioning, and individual developer tools through a single, cloud based service. Consideration under platform service arrangements includes both a variable component that changes each month depending on the number of subscribers hosted on the platform, as well as fixed payments and credits. The Company recognizes variable subscriber fees, including variable amounts in excess of substantive minimum fees where appropriate, as the fees are invoiced. Platform services represent a single promise to provide continuous access (i.e. a stand-ready performance obligation) to the platform. As each month of providing access to the platform is substantially the same and the customer simultaneously receives and consumes the benefits as access is provided, the performance obligation is comprised of a series of distinct service periods. Professional services provided under platform service arrangements can include implementation, training, consulting or software development/modification services. Revenues related to professional services are distinct from the other promises in the contract(s) and are recognized as the related services are performed, on the basis of hours consumed. Consideration is allocated between the platform services and professional services performance obligations by estimating the standalone selling price (“SSP”) of each performance obligation. The Company estimates the SSP of professional services based on observable standalone sales. The SSP of platform services is derived using the residual approach by estimating the total contract consideration and subtracting the SSP of professional services. Total contract consideration is estimated at contract inception, considering any constraints that may apply and updating the estimates as new information becomes available. 

 

Other professional services consist of professional service arrangements with platform services customers which are billed based on separate Statement of Work (“SOW”) arrangements for bespoke feature development. Revenues for professional services contracted through separate SOWs are recognized at a point-in-time when the final acceptance criteria have been met.

 

 

 

(c)

Tucows Domains

   

Domain registration contracts, which can be purchased for terms of one to ten years, provide our resellers and retail registrant customers with the exclusive right to a personalized internet address from which to build an online presence. The Company enters into domain registration contracts in connection with each new, renewed and transferred-in domain registration. At the inception of the contract, the Company charges and collects the registration fee for the entire registration period. Though fees are collected upfront, revenue from domain registrations are recognized rateably over the registration period as domain registration contracts contain a ‘right to access’ license of IP, which is a distinct performance obligation measured over time. The registration period begins once the Company has confirmed that the requested domain name has been appropriately recorded in the registry under contractual performance standards.

 

Domain related value-added services like digital certifications, WHOIS privacy, website hosting and hosted email provide our resellers and retail registrant customers with tools and additional functionality to be used in conjunction with domain registrations. All domain related value-added services are considered distinct performance obligations which transfer the promised service to the customer over the contracted term. Fees charged to customers for domain related value-added services are collected at the inception of the contract, and revenue is recognized on a straight-line basis over the contracted term, consistent with the satisfaction of the performance obligations.

 

The Company is an ICANN accredited registrar. Thus, the Company is the primary obligor with our reseller and retail registrant customers and is responsible for the fulfillment of our registrar services to those parties. As a result, the Company reports revenue in the amount of the fees we receive directly from our reseller and retail registrant customers. Our reseller customers maintain the primary obligor relationship with their retail customers, establish pricing and retain credit risk to those customers. Accordingly, the Company does not recognize any revenue related to transactions between our reseller customers and their ultimate retail customers.

 

The Company also sells the rights to the Company’s portfolio domains or names acquired through the Company’s domain expiry stream. Revenue generated from sale of domain name contracts, containing a distinct performance obligation to transfer the domain name rights under the Company’s control, is generally recognized once the rights have been transferred and payment has been received in full.

 

Advertising revenue is derived through domain parking monetization, whereby the Company contracts with third-party Internet advertising publishers to direct web traffic from the Company’s domain expiry stream domains and Internet portfolio domains to advertising websites. Compensation from Internet advertising publishers is calculated variably on a cost-per-action basis based on the number of advertising links that have been visited in a given month. Given that the variable consideration is calculated and paid on a monthly basis, no estimation of variable consideration is required.

 

Disaggregation of Revenue

 

The following is a summary of the Company’s revenue earned from each significant revenue stream (Dollar amounts in thousands of U.S. dollars):

 

  

2022

  

2021

   2020 
             

Ting:

            

Fiber Internet Services

 $42,425  $25,327  $17,151 
             

Wavelo:

            

Platform Services

  22,594   13,031   1,839 

Other professional services

  1,750   3,750   - 

Total Wavelo

  24,344   16,781   1,839 
             

Tucows Domains:

            

Wholesale

            

Domain Services

  187,542   189,091   186,893 

Value Added Services

  20,712   20,942   18,526 

Total Wholesale

  208,254   210,033   205,419 
             

Retail

  34,904   35,543   36,835 

Total Tucows Domains

  243,158   245,576   242,254 
             

Tucows Corporate:

            

Mobile Services and eliminations

  11,215   16,653   49,958 
             
  $321,142  $304,337  $311,202 

 

As of  December 31, 2022, one customer represented 46% of total accounts receivable. As of  December 31, 2021 one customer represented 46% of total accounts receivable. As of  December 31, 2020, one customer represented 59% of total accounts receivable.

 

During the years ended December 31, 2022,  December 31, 2021 and  December 31, 2020 no customer accounted for more than 10% of total revenue.

 

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

  

  

2022

  

2021

   2020 
             

Ting:

            

Fiber Internet Services

 $17,004  $12,035  $6,856 
             

Wavelo:

            

Platform Services

  1,294   504   183 

Other professional services

  1,632   804   - 

Total Wavelo

  2,926   1,308   183 
             

Tucows Domains:

            

Wholesale

            

Domain Services

  147,894   147,213   146,788 

Value Added Services

  2,514   2,544   3,016 

Total Wholesale

  150,408   149,757   149,804 
             

Retail

  16,482   17,731   17,647 

Total Tucows Domains

  166,890   167,488   167,451 
             

Tucows Corporate:

            

Mobile Services and eliminations

  9,448   12,208   25,911 
             

Network Expenses:

            

Network, other costs

  17,433   14,769   10,194 

Network, depreciation and amortization costs

  29,101   18,035   13,484 

Network, impairment

  92   201   1,638 

Total Network Expenses

  46,626   33,005   25,316 
             
  $242,894  $226,044  $225,717 

 

Contract Balances

 

The following table provides information about contract liabilities (deferred revenue) from contracts with customers. The Company accounts for contract assets and liabilities on a contract-by-contract basis, with each contract presented as either a net contract asset or a net contract liability accordingly.

 

Given that Company’s long-term contracts with customers are billed in advance of service, the Company’s contract liabilities relate to amounts recorded as deferred revenues. The Company does not have material streams of contracted revenue that have not been billed.

 

Deferred revenue primarily relates to the portion of the transaction price received in advance related to the unexpired term of domain name registrations and other domain related value-added services, on both a wholesale and retail basis, net of external commissions.

 

The opening balance of deferred revenue was $147.8 million as of January 1, 2022. Significant changes in deferred revenue were as follows (Dollar amounts in thousands of U.S. dollars): 

 

  

Year ended December 31, 2022

 
     

Balance, beginning of period

 $147,793 

Deferred revenue

  257,127 

Recognized revenue

  (259,789)

Balance, end of period

 $145,131 

  

Remaining Performance Obligations:

 

As the Company fulfills its performance obligations, the following table includes revenues expected to be recognized in the future related performance obligations that are unsatisfied (or partially unsatisfied) as at  December 31, 2022 (Dollar amounts in thousands of U.S. dollars)

 

  

December 31, 2022

 
     

2023

 $120,083 

2024

  10,033 

2025

  4,715 

2026

  2,871 

2027

  1,781 

Thereafter

  2,837 
     

Total

 $142,320 

For professional services and internet access services, where the performance obligation is part of contracts that have an original expected duration of one year or less, the Company has elected to apply a practical expedient to not disclose revenues expected to be recognized in the future related performance obligations that are unsatisfied (or partially unsatisfied). 

 

Although domain registration contracts are deferred over the lives of the individual contracts, which can range from one to ten years, approximately 80 percent of our deferred revenue balance related to domain contracts is expected to be recognized within the next twelve months.

 

Deferred revenue related to Exact hosting contracts is also deferred over the lives of the individual contracts, which are expected to be fully recognized within the next twelve months.