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Note 13 - Segment Reporting
 6 Months Ended
Jun. 30, 2023
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.

 

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 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 Loss before Provision for Income Taxes to Adjusted EBITDA

 

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(In Thousands of US Dollars)

 

2023

  

2022

  

2023

  

2022

 

(unaudited)

 

(unaudited)

  

(unaudited)

  

(unaudited)

  

(unaudited)

 
                 

Net Loss for the period

 $(30,968) $(3,125) $(50,051) $(6,145)

Less:

                

Provision for income taxes

  (3,025)  738   (4,735)  1,817 

Depreciation of property and equipment

  8,907   6,735   17,495   12,778 

Impairment and loss on disposition of property and equipment

  74   95   2,016   507 

Amortization of intangible assets

  2,609   2,843   5,481   5,686 

Interest expense, net

  10,501   2,422   18,381   4,217 

Loss on debt extinguishment

  14,680   -   14,680   - 

Accretion of contingent liability

  -   50   -   148 

Stock-based compensation

  2,052   1,436   4,298   2,828 

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

  (126)  46   (84)  100 

Acquisition and other costs1

  691   460   944   1,076 
                 

Adjusted EBITDA

 $5,395  $11,700  $8,425  $23,012 

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 June 30, 2023

                    
                     

Net Revenues

                    

External Revenues

 $12,408  $10,084  $59,956  $2,530  $84,978 

Intersegment Revenues

  -   667   -   (667)  - 

Total Net Revenues

  12,408   10,751   59,956   1,863   84,978 

Direct cost of revenues

  5,357   699   42,027   2,660   50,743 

Segment Gross Margin

  7,051   10,052   17,929   (797)  34,235 
                     

Network, other costs

                  6,993 

Network, depreciation of property and equipment

                  8,757 

Network, amortization of intangible assets

                  379 

Network, impairment of property and equipment

                  74 

Gross profit

                  18,032 
                     

Expenses:

                    

Sales and marketing

                  16,020 

Technical operations and development

                  4,581 

General and administrative

                  8,084 

Depreciation of property and equipment

                  150 

Loss on disposition of property and equipment

                  - 

Amortization of intangible assets

                  2,230 

Loss (gain) on currency forward contracts

                  68 

Total expenses

                  31,133 
                     

Loss from operations

                  (13,101)
                     

Other income (expenses):

                    

Interest expense, net

                  (10,501)

Loss on debt extinguishment

                  (14,680)

Income earned on sale of transferred assets

                  4,289 

Other expense, net

                  - 

Total other income (expense)

                  (20,892)
                     

Loss before provision for income taxes

                 $(33,993)
                     

Adjusted EBITDA

 $(10,336) $3,427  $10,578  $1,726  $5,395 

 

  

Ting

  

Wavelo

  

Tucows Domains

  

Tucows Corporate

  

Consolidated Totals

 

For the Three Months Ended June 30, 2022

                    
                     

Net Revenues

                    

External Revenues

 $10,221  $8,799  $61,063  $3,001  $83,084 

Intersegment Revenues

  -   171   -   (171)  - 

Total 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 
                     

Network, other costs

                  4,764 

Network, depreciation of property and equipment

                  6,589 

Network, amortization of intangible assets

                  378 

Network, impairment of property and equipment

                  - 

Gross profit

                  22,053 
                     

Expenses:

                    

Sales and marketing

                  13,503 

Technical operations and development

                  3,465 

General and administrative

                  6,814 

Depreciation of property and equipment

                  146 

Loss on disposition of property and equipment

                  95 

Amortization of intangible assets

                  2,465 

Loss (gain) on currency forward contracts

                  - 

Total expenses

                  26,488 
                     

Loss from operations

                  (4,435)
                     

Other income (expenses):

                    

Interest expense, net

                  (2,422)

Income earned on sale of transferred assets

                  4,520 

Other expense, net

                  (50)

Total other income (expense)

                  2,048 
                     

Loss before provision for income taxes

                 $(2,387)
                     

Adjusted EBITDA

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

 

  

Ting

  

Wavelo

  

Tucows Domains

  

Tucows Corporate

  

Consolidated Totals

 

For the Six Months Ended June 30, 2023

                    
                     

Net Revenues

                    

External Revenues

 $24,261  $16,726  $119,198  $5,223  $165,408 

Intersegment Revenues

  -   1,325   -   (1,325)  - 

Total Net Revenues

  24,261   18,051   119,198   3,898   165,408 

Direct cost of revenues

  9,342   1,725   83,748   5,218   100,033 

Segment Gross Margin

  14,919   16,326   35,450   (1,320)  65,375 
                     

Network, other costs

                  13,316 

Network, depreciation of property and equipment

                  17,193 

Network, amortization of intangible assets

                  757 

Network, impairment of property and equipment

                  2,016 

Gross profit

                  32,093 
                     

Expenses:

                    

Sales and marketing

                  31,757 

Technical operations and development

                  9,396 

General and administrative

                  16,275 

Depreciation of property and equipment

                  302 

Loss on disposition of property and equipment

                  - 

Amortization of intangible assets

                  4,724 

Loss (gain) on currency forward contracts

                  23 

Total expenses

                  62,477 
                     

Loss from operations

                  (30,384)
                     

Other income (expenses):

                    

Interest expense, net

                  (18,381)

Loss on debt extinguishment

                  (14,680)

Income earned on sale of transferred assets, net

                  8,659 

Other expense, net

                  - 

Total other income (expense)

                  (24,402)
                     

Loss before provision for income taxes

                 $(54,786)
                     

Adjusted EBITDA

 $(19,609) $3,762  $20,916  $3,356  $8,425 

 

  

Ting

  

Wavelo

  

Tucows Domains

  

Tucows Corporate

  

Consolidated Totals

 

For the Six Months Ended June 30, 2022

                    
                     

Net Revenues

                    

External Revenues

 $20,009  $15,489  $122,609  $6,076  $164,183 

Intersegment Revenues

  -   328   -   (328)  - 

Total Net Revenues

  20,009   15,161   122,609   6,404   164,183 

Direct cost of revenues

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

Segment Gross Margin

  11,554   13,142   39,697   1,069   65,462 
                     

Network, other costs

                  8,944 

Network, depreciation of property and equipment

                  12,484 

Network, amortization of intangible assets

                  756 

Network, impairment of property and equipment

                  27 

Gross profit

                  43,251 
                     

Expenses:

                    

Sales and marketing

                  25,490 

Technical operations and development

                  7,230 

General and administrative

                  14,110 

Depreciation of property and equipment

                  294 

Loss on disposition of property and equipment

                  480 

Amortization of intangible assets

                  4,930 

Loss (gain) on currency forward contracts

                  - 

Total expenses

                  52,534 
                     

Loss from operations

                  (9,283)
                     

Other income (expenses):

                    

Interest expense, net

                  (4,217)

Income earned on sale of transferred assets

                  9,272 

Other expense, net

                  (100)

Total other income (expense)

                  4,955 
                     

Loss before provision for income taxes

                 $(4,328)
                     

Adjusted EBITDA

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

 

(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, 2023  December 31, 2022 
         

Canada

 $1,162  $1,240 

United States

  318,196   280,219 

Europe

  35   36 
  $319,393  $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): 

 

  June 30, 2023  December 31, 2022 
         

Canada

 $2,221  $2,736 

United States

  20,187   24,770 
  $22,408  $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

 
                 

Six Months Ended June 30, 2023

 $693     $90  $603 

Twelve months ended December 31, 2022

 $541  $152  $-  $693