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Note 12 - Segment Reporting
 3 Months Ended
Mar. 31, 2023
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

12. 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.

 

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.     Ting - This segment derives revenue from providing retail high speed Internet access services to individuals and small businesses.  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 income earned on sale of transferred 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 9 – 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 Income before Provision for Income Taxes to Adjusted EBITDA

 

Three Months Ended March 31,

 

(In Thousands of US Dollars)

 

2023

  

2022

 

(unaudited)

 

(unaudited)

  

(unaudited)

 
         

Net Income (Loss) for the period

 $(19,083) $(3,020)

Less:

        

Provision for income taxes

  (1,710)  1,078 

Depreciation of property and equipment

  8,588   6,043 

Impairment and loss on disposition of property and equipment

  1,942   412 

Amortization of intangible assets

  2,872   2,843 

Interest expense, net

  7,880   1,796 

Accretion of contingent liability

  -   98 

Stock-based compensation

  2,246   1,391 

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

  40   53 

Acquisition and other costs1

  255   617 
         

Adjusted EBITDA

 $3,030  $11,311 

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.

 

  

Ting

  

Wavelo

  

Tucows Domains

  

Tucows Corporate

  

Consolidated Totals

 

For the Three Months Ended March 31, 2023

                    
                     

Net Revenues

                    

External Revenues

 $11,853  $7,958  $59,242  $1,377  $80,430 

Intersegment Revenues

  -   658   -   (658)  - 

Total Net Revenues

  11,853   7,300   59,242   2,035   80,430 

Direct cost of revenues

  3,985   1,026   41,721   2,558   49,290 

Segment Gross Margin

  7,868   6,274   17,521   (523)  31,140 
                     

Network, other costs

                  6,323 

Network, depreciation of property and equipment

                  8,436 

Network, amortization of intangible assets

                  378 

Network, impairment of property and equipment

                  1,942 

Gross profit

                  14,061 
                     

Expenses:

                    

Sales and marketing

                  15,737 

Technical operations and development

                  4,815 

General and administrative

                  8,146 

Depreciation of property and equipment

                  152 

Loss on disposition of property and equipment

                  - 

Amortization of intangible assets

                  2,494 

Loss (gain) on currency forward contracts

                  - 

Total expenses

                  31,344 
                     

Income (Loss) from operations

                  (17,283)
                     

Other income (expenses):

                    

Interest expense, net

                  (7,880)

Income earned on sale of transferred assets

                  4,370 

Other expense, net

                  - 

Total other income (expense)

                  (3,510)
                     

Income (Loss) before provision for income taxes

                 $(20,793)
                     

Adjusted EBITDA

 $(9,273) $335  $10,338  $1,630  $3,030 

 

  

Ting

  

Wavelo

  

Tucows Domains

  

Tucows Corporate

  

Consolidated Totals

 

For the Three Months Ended March 31, 2022

                    
                     

Net Revenues

                    

External Revenues

 $9,788  $7,004  $61,546  $2,761  $81,099 

Intersegment Revenues

  -   157   -   (157)  - 

Total Net Revenues

  9,788   6,847   61,546   2,918   81,099 

Direct cost of revenues

  4,038   961   41,812   2,610   49,421 

Segment Gross Margin

  5,751   5,886   19,733   308   31,678 
                     

Network, other costs

                  4,180 

Network, depreciation of property and equipment

                  5,895 

Network, amortization of intangible assets

                  378 

Network, impairment of property and equipment

                  27 

Gross profit

                  21,198 
                     

Expenses:

                    

Sales and marketing

                  11,987 

Technical operations and development

                  3,765 

General and administrative

                  7,296 

Depreciation of property and equipment

                  148 

Loss on disposition of property and equipment

                  385 

Amortization of intangible assets

                  2,465 

Loss (gain) on currency forward contracts

                  - 

Total expenses

                  26,046 
                     

Income (Loss) from operations

                  (4,848)
                     

Other income (expenses):

                    

Interest expense, net

                  (1,796)

Income earned on sale of transferred assets

                  4,752 

Other expense, net

                  (50)

Total other income (expense)

                  2,906 
                     

Income (Loss) before provision for income taxes

                 $(1,942)
                     

Adjusted EBITDA

 $(4,321) $2,047  $11,774  $1,811  $11,311 

 

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

 

  March 31, 2023  December 31, 2022 
         

Canada

 $1,348  $1,240 

United States

  302,407   280,219 

Europe

  36   36 
  $303,791  $281,495 

 

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

 

  March 31, 2023  December 31, 2022 
         

Canada

 $2,349  $2,736 

United States

  22,451   24,770 

Germany

  -   - 
  $24,800  $27,506 

 

(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

 
                 

Three Months Ended March 31, 2023

 $693  $-  $68  $625 

Twelve months ended December 31, 2022

 $541  $152  $-  $693