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Note 13 - Segment Reporting
 9 Months Ended
Sep. 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 for 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 intangible 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 September 30,

  

Nine Months Ended September 30,

 

(In Thousands of US Dollars)

 

2023

  

2022

  

2023

  

2022

 

(unaudited)

 

(unaudited)

  

(unaudited)

  

(unaudited)

  

(unaudited)

 
                 

Net Loss for the period

 $(22,772) $(7,981) $(72,823) $(14,126)

Less:

                

Provision (recovery) for income taxes

  (822)  (1,027)  (5,557)  790 

Depreciation of property and equipment

  9,275   7,285   26,770   20,063 

Impairment and loss on disposition of property and equipment

  2,663   (16)  4,679   491 

Amortization of intangible assets

  2,620   2,842   8,101   8,528 

Interest expense, net

  10,739   4,337   29,120   8,555 

Loss on debt extinguishment

  -   -   14,680   - 

Accretion of contingent liability

  -   50   -   198 

Stock-based compensation

  2,308   1,569   6,606   4,396 

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

  340   348   254   446 

Acquisition and other costs1

  121   472   1,067   1,549 
                 

Adjusted EBITDA

 $4,472  $7,879  $12,897  $30,890 

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 September 30, 2023

                    
                     

Net Revenues

                    

External Revenues

 $12,855  $10,397  $61,088  $2,631  $86,971 

Intersegment Revenues

  -   677   -   (677)  - 

Total Net Revenues

  12,855   11,074   61,088   1,954   86,971 

Direct cost of revenues

  4,869   570   42,713   2,565   50,717 

Segment Gross Margin

  7,986   10,504   18,375   (611)  36,254 
                     

Network, other costs

                  7,322 

Network, depreciation of property and equipment

                  9,138 

Network, amortization of intangible assets

                  378 

Network, impairment of property and equipment

                  2,663 

Gross profit

                  16,753 
                     

Expenses:

                    

Sales and marketing

                  17,295 

Technical operations and development

                  4,818 

General and administrative

                  9,399 

Depreciation of property and equipment

                  137 

Amortization of intangible assets

                  2,242 

Loss (gain) on currency forward contracts

                  29 

Total expenses

                  33,920 
                     

Loss from operations

                  (17,167)
                     

Other income (expenses):

                    

Interest expense, net

                  (10,739)

Income earned on sale of transferred assets

                  4,312 

Total other income (expense)

                  (6,427)
                     

Loss before provision for income taxes

                 $(23,594)
                     

Adjusted EBITDA

 $(12,176) $4,207  $10,913  $1,528  $4,472 

 

  

Ting

  

Wavelo

  

Tucows Domains

  

Tucows Corporate

  

Consolidated Totals

 

For the Three Months Ended September 30, 2022

                    
                     

Net Revenues

                    

External Revenues

 $10,946  $3,863  $60,281  $2,960  $78,050 

Intersegment Revenues

  -   185   -   (185)  - 

Total Net Revenues

  10,946   4,048   60,281   2,775   78,050 

Direct cost of revenues

  4,290   235   42,111   1,666   48,302 

Segment Gross Margin

  6,656   3,813   18,170   1,109   29,748 
                     

Network, other costs

                  4,244 

Network, depreciation of property and equipment

                  7,136 

Network, amortization of intangible assets

                  378 

Network, impairment of property and equipment

                  3 

Gross profit

                  17,987 
                     

Expenses:

                    

Sales and marketing

                  13,894 

Technical operations and development

                  2,983 

General and administrative

                  7,897 

Depreciation of property and equipment

                  149 

Loss on disposition of property and equipment

                  (19)

Amortization of intangible assets

                  2,464 

Total expenses

                  27,368 
                     

Loss from operations

                  (9,381)
                     

Other income (expenses):

                    

Interest expense, net

                  (4,337)

Income earned on sale of transferred assets

                  4,737 

Other expense, net

                  (27)

Total other income (expense)

                  373 
                     

Loss before provision for income taxes

                 $(9,008)
                     

Adjusted EBITDA

 $(5,040) $(902) $10,385  $3,436  $7,879 

 

  

Ting

  

Wavelo

  

Tucows Domains

  

Tucows Corporate

  

Consolidated Totals

 

For the Nine Months Ended September 30, 2023

                    
                     

Net Revenues

                    

External Revenues

 $37,116  $27,123  $180,286  $7,854  $252,379 

Intersegment Revenues

  -   2,002   -   (2,002)  - 

Total Net Revenues

  37,116   29,125   180,286   5,852   252,379 

Direct cost of revenues

  14,211   2,295   126,461   7,783   150,750 

Segment Gross Margin

  22,905   26,830   53,825   (1,931)  101,629 
                     

Network, other costs

                  20,638 

Network, depreciation of property and equipment

                  26,331 

Network, amortization of intangible assets

                  1,135 

Network, impairment of property and equipment

                  4,679 

Gross profit

                  48,846 
                     

Expenses:

                    

Sales and marketing

                  49,052 

Technical operations and development

                  14,214 

General and administrative

                  25,674 

Depreciation of property and equipment

                  439 

Amortization of intangible assets

                  6,966 

Loss (gain) on currency forward contracts

                  52 

Total expenses

                  96,397 
                     

Loss from operations

                  (47,551)
                     

Other income (expenses):

                    

Interest expense, net

                  (29,120)

Loss on debt extinguishment

                  (14,680)

Income earned on sale of transferred assets, net

                  12,971 

Other expense, net

                  - 

Total other income (expense)

                  (30,829)
                     

Loss before provision for income taxes

                 $(78,380)
                     

Adjusted EBITDA

 $(31,785) $7,969  $31,829  $4,884  $12,897 

 

  

Ting

  

Wavelo

  

Tucows Domains

  

Tucows Corporate

  

Consolidated Totals

 

For the Nine Months Ended September 30, 2022

                    
                     

Net Revenues

                    

External Revenues

 $30,955  $19,352  $182,890  $9,036  $242,233 

Intersegment Revenues

  -   513   -   (513)  - 

Total Net Revenues

  30,955   18,839   182,890   9,549   242,233 

Direct cost of revenues

  12,746   2,254   125,023   7,000   147,023 

Segment Gross Margin

  18,209   16,585   57,867   2,549   95,210 
                     

Network, other costs

                  13,188 

Network, depreciation of property and equipment

                  19,620 

Network, amortization of intangible assets

                  1,134 

Network, impairment of property and equipment

                  30 

Gross profit

                  61,238 
                     

Expenses:

                    

Sales and marketing

                  39,384 

Technical operations and development

                  10,212 

General and administrative

                  22,006 

Depreciation of property and equipment

                  443 

Loss on disposition of property and equipment

                  461 

Amortization of intangible assets

                  7,394 

Total expenses

                  79,900 
                     

Loss from operations

                  (18,662)
                     

Other income (expenses):

                    

Interest expense, net

                  (8,555)

Income earned on sale of transferred assets

                  14,009 

Other expense, net

                  (128)

Total other income (expense)

                  5,326 
                     

Loss before provision for income taxes

                 $(13,336)
                     

Adjusted EBITDA

 $(15,546) $5,017  $34,266  $7,153  $30,890 

 

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

 

  September 30, 2023  December 31, 2022 
         

Canada

 $1,007  $1,240 

United States

  329,832   280,219 

Europe

  35   36 
  $330,874  $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): 

 

  September 30, 2023  December 31, 2022 
         

Canada

 $2,104  $2,736 

United States

  17,716   24,770 
  $19,820  $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

 
                 

Nine Months Ended September 30, 2023

 $693  $-  $98  $595 

Twelve months ended December 31, 2022

 $541  $152  $-  $693 

 

Included in Accounts receivables, net, on our consolidated balance sheets are receivables primarily related to customers, as well as other receivables. As of September 30, 2023 and December 31, 2022, other receivables were $1.1 million and nil. Other receivables related primarily to interest income from short-term cash deposits.