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Note 20 - Segment Reporting
 12 Months Ended
Dec. 31, 2022
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

 20. 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: Ting, Wavelo and Tucows Domains. 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 Tucows Corporate and ISP platform revenues and related results previously included within Ting are now included within Wavelo.

 

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.  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.

 

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

 

1. Ting - 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. Wavelo – 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. Tucows Domains – 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 Tucows Corporate for Finance, Human Resources and other technical services, to the operating units. In addition, Wavelo charges Ting a subscriber based monthly charge services rendered. Financial impacts from these allocations and cross segment charges are eliminated as part of the Tucows 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 and general and administrative expenses and not reviewed or managed by the CEO separate from adjusted EBITDA, and are thus not included as separate measurements of segment profitability. 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. 

 

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 not indicative of on-going performance, including acquisition and transition costs. Certain revenues and expenses disclosed under the Tucows 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.

 

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"). Total assets and total liabilities are centrally managed and are not reviewed at the segment level by the CEO.

 

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): 

 

  

Ting

  

Wavelo

  

Tucows Domains

  

Tucows Corporate

  

Consolidated Totals

 

Year Ended December 31, 2022

                    
                     

Net Revenues

                    

External Revenues

 $42,425  $23,632  $243,158  $11,927  $321,142 

Intersegment Revenues

  -   712   -   (712)  - 

Total Net Revenues

  42,425   24,344   243,158   11,215   321,142 

Direct cost of revenues

  17,004   2,926   166,890   9,448   196,268 

Segment Gross Margin

  25,421   21,418   76,268   1,767   124,874 

Network, other costs

                  17,433 

Network, depreciation of property and equipment

                  27,589 

Network, amortization of intangible assets

                  1,512 

Network, impairment of property and equipment

                  92 

Gross profit

                  78,248 
                     

Expenses:

                    

Sales and marketing

                  53,937 

Technical operations and development

                  14,187 

General and administrative

                  30,845 

Depreciation of property and equipment

                  598 

Loss on disposition of property and equipment

                  461 

Amortization of intangible assets

                  9,882 

Loss (gain) on currency forward contracts

                  - 

Total expenses

                  109,910 
                     

Income (Loss) from operations

                  (31,662)
                     

Other income (expenses):

                    

Interest expense, net

                  (14,456)

Income earned on sale of transferred assets, net

                  18,507 

Other expense, net

                  (177)

Total other income (expenses)

                  3,874 
                     

Income (Loss) before provision for income taxes

                 $(27,788)
                     

Adjusted EBITDA

 $(21,557) $3,875  $44,834  $10,438  $37,590 

 

  

Ting

  

Wavelo

  

Tucows Domains

  

Tucows Corporate

  

Consolidated Totals

 

Year Ended December 31, 2021

                    
                     

Net Revenues

                    

External Revenues

 $25,327  $16,781  $245,576  $16,653  $304,337 

Intersegment Revenues

  -   -   -   -   - 

Total Net Revenues

  25,327   16,781   245,576   16,653   304,337 

Direct cost of revenues

  12,035   1,308   167,488   12,208   193,039 

Segment Gross Margin

  13,292   15,473   78,088   4,445   111,298 

Network, other costs

                  14,769 

Network, depreciation of property and equipment

                  17,452 

Network, amortization of intangible assets

                  583 

Network, impairment of property and equipment

                  201 

Gross profit

                  78,293 
                     

Expenses:

                    

Sales and marketing

                  39,471 

Technical operations and development

                  14,310 

General and administrative

                  22,370 

Depreciation of property and equipment

                  534 

Loss (gain) on disposition of property and equipment

                  234 

Amortization of intangible assets

                  9,424 

Impairment of definite life intangible assets

                  (277)

Gain on currency forward contracts

                  - 

Total expenses

                  86,066 
                     

Income (Loss) from operations

                  (7,773)
                     

Other income (expenses):

                    

Interest expense, net

                  (4,617)

Gain on sale of Ting customer assets, net

                  20,030 

Other expense, net

                  (370)

Total other income (expenses)

                  15,043 
                     

Income (Loss) before provision for income taxes

                 $7,270 
                     

Adjusted EBITDA

 $(18,778) $7,334  $47,765  $12,500  $48,821 

  

  

Ting

  

Wavelo

  

Tucows Domains

  

Tucows Corporate

  

Consolidated Totals

 

Year Ended December 31, 2020

                    
                     

Net Revenues

                    

External Revenues

 $17,151  $1,839  $242,254  $49,958  $311,202 

Intersegment Revenues

  -   -   -   -   - 

Total Net Revenues

  17,151   1,839   242,254   49,958   311,202 

Direct cost of revenues

  6,856   183   167,451   25,911   200,401 

Segment Gross Margin

  10,295   1,656   74,803   24,047   110,801 

Network, other costs

                  10,194 

Network, depreciation of property and equipment

                  12,144 

Network, amortization of intangible assets

                  1,340 

Network, impairment of property and equipment

                  1,638 

Gross profit

                  85,485 
                     

Expenses:

                    

Sales and marketing

                  34,274 

Technical operations and development

                  12,427 

General and administrative

                  20,268 

Depreciation of property and equipment

                  488 

Loss (gain) on disposition of property and equipment

                  (17)

Amortization of intangible assets

                  10,080 

Impairment of definite life intangible assets

                  1,431 

Gain on currency forward contracts

                  (383)

Total expenses

                  78,568 
                     

Income (Loss) from operations

                  6,917 
                     

Other income (expenses):

                    

Interest expense, net

                  (3,611)

Gain on sale of Ting customer assets, net

                  7,612 

Other expense, net

                  (158)

Total other income (expenses)

                  3,843 
                     

Income (Loss) before provision for income taxes

                 $10,760 
                     

Adjusted EBITDA

 $(6,349) $(5,381) $46,158  $16,545  $50,973 

 

Reconciliation of Income before Provision for Income Taxes to Adjusted EBITDA

 

Twelve months ended December 31,

 

(In Thousands of US Dollars)

 

2022

  

2021

  

2020

 
             

Net Income for the period

 $(27,571) $3,364  $5,775 

Less:

            

Provision for income taxes

  (217)  3,906   4,985 

Depreciation of property and equipment

  28,187   17,986   12,632 

Impairment and loss on disposition of property and equipment

  553   435   1,621 

Amortization of intangible assets

  11,394   10,007   11,420 

Impairment of definite life intangible assets

  -   -   1,431 

Write-down on disposal of Ting Mobile customer assets

  -   -   3,513 

Interest expense, net

  14,456   4,617   3,611 

Accretion of contingent liability

  248   383   344 

Stock-based compensation

  7,599   4,592   3,718 

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

  -   606   (500)

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

  281   219   461 

Acquisition and other costs1

  2,660   2,706   1,962 
             

Adjusted EBITDA

 $37,590  $48,821  $50,973 

 

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):

 

  

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 

 

(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, 2022

  

December 31, 2021

 
         

Canada

 $1,240  $1,994 

United States

  280,219   170,630 

Europe

  36   38 
  $281,495  $172,662 

 

(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, 2022

  

December 31, 2021

 
         

Canada

 $2,736  $1,386 

United States

  24,770   36,732 
  $27,506  $38,118 

 

(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, 2022

  

December 31, 2021

 
         

Canada

 $-  $22 
  $-  $22 

 

(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, 2022

 $541  $152  $-  $693 

Year Ended December 31, 2021

 $222  $319  $-  $541