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Note 16 - Stock Option Plans | 12 Months Ended
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Dec. 31, 2023
Notes to Financial Statements |
Share-Based Payment Arrangement [Text Block] | 16. Stock Option Plans: 2006 Tucows Equity Compensation Plan On November 22, 2006, the shareholders of the Company approved the Company’s 2006 Equity Compensation Plan (the “2006 Plan”), which was amended and restated effective July 29, 2010 and which serves as a successor to the 1996 Plan. The 2006 Plan has been established for the benefit of the employees, officers, directors and certain consultants of the Company. The maximum number of common shares which have initially set aside for issuance under the 2006 Plan is 1.25 million shares. On October 8, 2010, the 2006 Plan was amended to increase the number of shares set aside for issuance by an additional 0.475 million shares to 1.725 million shares. In September 2015, the 2006 Plan was amended to increase the number of shares set aside for issuance by an additional 0.75 million shares to 2.475 million shares. In November 2020, the 2006 Plan was amended to increase the number of shares set aside for issuance by an additional 1.53 million shares to 4.0 million shares. Generally, options issued under the 2006 Plan vest over a four-year period and have a term not exceeding seven years, except for automatic formula grants of non-qualified stock options, which vest after one year and have a five-year term. Prior to the September 2015 amendment to the 2006 Plan, automatic formula grants of non-qualified stock options vested immediately upon grant. Our current equity-based compensation plans include provisions that allow for the “net exercise” of stock options by all plan participants. In a net exercise, any required payroll taxes, federal withholding taxes and exercise price of the shares due from the option holder can be paid for by having the option holder tender back to the Company a number of shares at fair value equal to the amounts due. These transactions are accounted for by the Company as a purchase and retirement of shares. The fair value of each option grant ("Company Option") is estimated on the date of grant using the Black-Scholes option-pricing model. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. The assumptions presented in the table below represent the weighted average of the applicable assumption used to value stock options at their grant date. The Company calculates expected volatility based on historical volatility of the Company’s common shares. The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on historical exercise experience. The Company evaluated historical exercise behavior when determining the expected term assumptions. The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The Company determines the expected dividend yield percentage by dividing the expected annual dividend by the market price of Tucows Inc. common shares at the date of grant. The fair value of Company Options granted during the years ended December 31, 2023, December 31, 2022 and December 31, 2021 was estimated using the following weighted average assumptions:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Volatility |  |  | 42.6 | % |  |  | 34.9 | % |  |  | 35.7 | %
Risk-free interest rate |  |  | 4.2 | % |  |  | 3.4 | % |  |  | 0.8 | %
Expected life (in years) |  |  | 4.46 |  |  |  | 4.60 |  |  |  | 4.60 |
Dividend yield |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | %
The weighted average grant date fair value for options issued, with the exercise price equal to market value on the date of grant |  | $ | 10.34 |  |  | $ | 14.93 |  |  | $ | 24.83 |
Details of Company Option transactions are as follows:
|  | Year Ended December 31, 2023 |  |  | Year Ended December 31, 2022 |  |  | Year Ended December 31, 2021 |
|  | Number of shares |  |  | Weighted average exercise price per share |  |  | Number of shares |  |  | Weighted average exercise price per share |  |  | Number of shares |  |  | Weighted average exercise price per share |
Outstanding, beginning of period |  |  | 1,036,748 |  |  | $ | 59.97 |  |  |  | 904,151 |  |  | $ | 64.36 |  |  |  | 845,020 |  |  | $ | 55.31 |
Granted |  |  | 172,305 |  |  |  | 25.04 |  |  |  | 262,980 |  |  |  | 42.15 |  |  |  | 282,625 |  |  |  | 79.30 |
Exercised |  |  | - |  |  |  | - |  |  |  | (40,459 | ) |  |  | 31.95 |  |  |  | (179,321 | ) |  |  | 45.04 |
Forfeited |  |  | (41,126 | ) |  |  | 58.89 |  |  |  | (55,234 | ) |  |  | 68.11 |  |  |  | (41,240 | ) |  |  | 65.72 |
Expired |  |  | (35,295 | ) |  |  | 68.58 |  |  |  | (34,690 | ) |  |  | 58.92 |  |  |  | (2,933 | ) |  |  | 60.70 |
Outstanding, end of period |  |  | 1,132,632 |  |  |  | 54.61 |  |  |  | 1,036,748 |  |  |  | 59.97 |  |  |  | 904,151 |  |  |  | 64.36 |
Options exercisable, end of period |  |  | 731,945 |  |  | $ | 61.05 |  |  |  | 520,679 |  |  | $ | 62.74 |  |  |  | 415,925 |  |  | $ | 56.44 |
As of December 31, 2023, the exercise prices, weighted average remaining contractual life of outstanding options and intrinsic values were for Company Options were as follows:
|  | Options outstanding |  |  | Options exercisable |
Exercise price |  | Number outstanding |  |  | Weighted average exercise price per share |  |  | Weighted average remaining contractual life (years) |  |  | Aggregate intrinsic value |  |  | Number exercisable |  |  | Weighted average exercise price per share |  |  | Weighted average remaining contractual life (years) |  |  | Aggregate intrinsic value |
$16.47 - $19.78 |  |  | 31,250 |  |  | $ | 19.38 |  |  |  | 4.7 |  |  | $ | 238 |  |  |  | - |  |  | $ | - |  |  |  | - |  |  | $ | - |
$21.07 - $28.37 |  |  | 139,497 |  |  |  | 26.29 |  |  |  | 6.4 |  |  |  | 102 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
$30.70 - $30.74 |  |  | 20,000 |  |  |  | 30.71 |  |  |  | 5.9 |  |  |  | - |  |  |  | 5,000 |  |  |  | 30.71 |  |  |  | 5.9 |  |  |  | - |
$40.04 - $48.00 |  |  | 216,247 |  |  |  | 42.40 |  |  |  | 5.3 |  |  |  | - |  |  |  | 77,231 |  |  |  | 43.21 |  |  |  | 5.0 |  |  |  | - |
$51.82 - $59.98 |  |  | 193,633 |  |  |  | 55.72 |  |  |  | 1.0 |  |  |  | - |  |  |  | 225,837 |  |  |  | 55.70 |  |  |  | 0.9 |  |  |  | - |
$60.01 - $68.41 |  |  | 292,332 |  |  |  | 62.10 |  |  |  | 2.7 |  |  |  | - |  |  |  | 289,494 |  |  |  | 62.41 |  |  |  | 2.5 |  |  |  | - |
$70.13 - $79.51 |  |  | 223,173 |  |  |  | 78.50 |  |  |  | 4.1 |  |  |  | - |  |  |  | 124,258 |  |  |  | 78.28 |  |  |  | 4.0 |  |  |  | - |
$80.61 - $82.07 |  |  | 16,500 |  |  |  | 81.27 |  |  |  | 4.8 |  |  |  | - |  |  |  | 10,125 |  |  |  | 81.42 |  |  |  | 4.8 |  |  |  | - |
|  |  | 1,132,632 |  |  | $ | 54.61 |  |  |  | 3.8 |  |  | $ | 340 |  |  |  | 731,945 |  |  | $ | 61.05 |  |  |  | 2.6 |  |  | $ | - |
Total unrecognized compensation cost relating to unvested Company Options at December 31, 2023 , prior to the consideration of expected forfeitures, is approximately $5.5 million and is expected to be recognized over a weighted average period of 2.8 years. There were no exercises of Company Options during the year ended December 31, 2023. The total intrinsic value of Company Options exercised during the years ended December 31, 2022 and December 31, 2021 wa s $0.8 million and $6.4 million, respectively. Cash received from the exercise of stock options during the years ended December 31, 2022 and December 31, 2021 was $1.1 million and $4.8 million respectively. The Company recorded stock-based compensation for Company options amounting to $6.0 million, $5.8 million and $4.6 million for the years ended December 31, 2023, 2022 and 2021 respectively. Stock-based compensation for the Company stock has been included in operating expenses as follows (Dollar amounts in thousands of US dollars):
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Network expenses |  | $ | 399 |  |  | $ | 399 |  |  | $ | 531 |
Sales and marketing |  |  | 1,423 |  |  |  | 1,498 |  |  |  | 1,941 |
Technical operations and development |  |  | 634 |  |  |  | 545 |  |  |  | 824 |
General and administrative |  |  | 3,577 |  |  |  | 3,337 |  |  |  | 1,296 |
|  | $ | 6,033 |  |  | $ | 5,779 |  |  | $ | 4,592 |
2022 Wavelo Equity Compensation Plan On November 9, 2022 the Board of Wavelo approved Wavelo's Equity Compensation Plan (Wavelo ECP), which has been established for the benefit of the employees, officers, directors and certain consultants of Wavelo or Tucows. The Wavelo stock options were introduced in order to provide variable compensation that helps retain executives and ensures that our executives' interests are aligned with those stakeholders of the business to grow long-term value. Wavelo is a wholly owned subsidiary of Tucows. The maximum number of Wavelo common shares which have been set aside for issuance under the 2022 Plan is 20 million shares, currently there are 100 million shares outstanding. The options issued under the ECP primarily vest over a period of three years and have a 7-year term. For the initial grants under the plan, the first 25% became exercisable within three months and vesting ratably monthly thereafter, subsequently for three years. Compensation costs for awards of stock-based compensation settled in shares are determined based on the fair value of the share-based instrument at the time of the grant and are recognized as expense over the vesting period of the share-based instrument. The Company recognizes forfeitures as they occur. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. The Company calculates expected volatility based on the actual volatility of comparable publicly traded companies. The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The Company assumes the expected dividend yield to be zero. The fair value of stock options granted during the year ended December 31, 2023 was estimated using the following weighted average assumptions:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Volatility |  |  | 40.6 | % |  |  | 40.7 | % |  |  | N/A |
Risk-free interest rate |  |  | 4.3 | % |  |  | 4.4 | % |  |  | N/A |
Expected life (in years) |  |  | 4.17 |  |  |  | 4.16 |  |  |  | N/A |
Dividend yield |  |  | 0.0 | % |  |  | 0.0 | % |  |  | N/A |
The weighted average grant date fair value for options issued, with the exercise price equal to market value on the date of grant |  | $ | 0.49 |  |  | $ | 0.49 |  |  |  | N/A |
Details of Wavelo's stock option transactions are as follows:
|  | Year Ended December 31, 2023 |  |  | Year Ended December 31, 2022 |  |  | Year Ended December 31, 2021 |
|  | Number of shares |  |  | Weighted average exercise price per share |  |  | Number of shares |  |  | Weighted average exercise price per share |  |  | Number of shares |  |  | Weighted average exercise price per share |
Outstanding, beginning of period |  |  | 15,975,528 |  |  | $ | 1.27 |  |  |  | - |  |  | $ | - |  |  |  | N/A |  |  |  | N/A |
Granted |  |  | 865,000 |  |  |  | 1.37 |  |  |  | 15,975,528 |  |  |  | 1.27 |  |  |  | N/A |  |  |  | N/A |
Exercised |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | N/A |  |  |  | N/A |
Forfeited |  |  | (451,708 | ) |  |  | 1.27 |  |  |  | - |  |  |  | - |  |  |  | N/A |  |  |  | N/A |
Expired |  |  | (55,587 | ) |  |  | 1.27 |  |  |  | - |  |  |  | - |  |  |  | N/A |  |  |  | N/A |
Outstanding, end of period |  |  | 16,333,233 |  |  |  | 1.28 |  |  |  | 15,975,528 |  |  |  | 1.27 |  |  |  | N/A |  |  |  | N/A |
Options exercisable, end of period |  |  | 7,752,114 |  |  | $ | 1.27 |  |  |  | 15,975,528 |  |  | $ | 1.27 |  |  |  | N/A |  |  |  | N/A |
As of December 31, 2023, the exercise prices, weighted average remaining contractual life of outstanding options and intrinsic values were for Wavelo stock options were as follows:
|  | Options outstanding |  |  | Options exercisable |
Exercise price |  | Number outstanding |  |  | Weighted average exercise price per share |  |  | Weighted average remaining contractual life (years) |  |  | Aggregate intrinsic value |  |  | Number exercisable |  |  | Weighted average exercise price per share |  |  | Weighted average remaining contractual life (years) |  |  | Aggregate intrinsic value |
$0.00 - $1.74 |  |  | 16,333,233 |  |  | $ | 1.28 |  |  |  | 5.9 |  |  | $ | 7,588 |  |  |  | 7,752,114 |  |  | $ | 1.27 |  |  |  | 5.9 |  |  | $ | 3,643 |
|  |  | 16,333,233 |  |  | $ | 1.28 |  |  |  | 5.9 |  |  | $ | 7,588 |  |  |  | 7,752,114 |  |  | $ | 1.27 |  |  |  | 5.9 |  |  | $ | 3,643 |
Total unrecognized compensation cost relating to unvested Wavelo stock options at December 31, 2023, prior to the consideration of expected forfeitures, is approximately $4.5 million and is expected to be recognized over a weighted average period of 2.2 years. Stock-based compensation for the Wavelo stock options has been included in operating expenses as follows (Dollar amounts in thousands of US dollars):
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Network expenses |  | $ | 131 |  |  | $ | 104 |  |  | $ | - |
Sales and marketing |  |  | 931 |  |  |  | 508 |  |  |  | - |
Technical operations and development |  |  | 259 |  |  |  | 407 |  |  |  | - |
General and administrative |  |  | 434 |  |  |  | 801 |  |  |  | - |
|  | $ | 1,755 |  |  | $ | 1,820 |  |  | $ | - |
2022 Ting Equity Compensation Plan On January 16, 2023 the Board of Ting Fiber, LLC approved Ting's Equity Compensation Plan (Ting ECP), which has been established for the benefit of the employees, officers, directors and certain consultants of Ting or Tucows. The Ting stock options were introduced in order to provide variable compensation that helps retain executives and ensures that our executives' interests are aligned with those stakeholders of the business to grow the long-term value. The maximum number of Ting common units that have been set aside for issuance under the plan is 10 million units, currently there are 100 million common units outstanding. Generally, options issued under the ECP vest over a four-year period and have a term not exceeding seven years. Compensation costs for awards of stock-based compensation settled in shares are determined based on the fair value of share-based instrument at the time of the grant and are recognized as expense over the vesting period of the share based instrument. The Company calculates expected volatility based on the actual volatility of comparable publicly traded companies. The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The Company assumes the expected dividend yield to be zero. The fair value of stock options granted during the year ended December 31, 2023 was estimated using the following weighted average assumptions:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Volatility |  |  | 35.8 | % |  |  | N/A |  |  |  | N/A |
Risk-free interest rate |  |  | 3.8 | % |  |  | N/A |  |  |  | N/A |
Expected life (in years) |  |  | 4.18 |  |  |  | N/A |  |  |  | N/A |
Dividend yield |  |  | 0.0 | % |  |  | N/A |  |  |  | N/A |
The weighted average grant date fair value for options issued, with the exercise price equal to market value on the date of grant |  | $ | 0.11 |  |  |  | N/A |  |  |  | N/A |
Details of Ting's stock option transactions are as follows:
|  | Year Ended December 31, 2023 |  |  | Year Ended December 31, 2022 |  |  | Year Ended December 31, 2021 |
|  | Number of shares |  |  | Weighted average exercise price per share |  |  | Number of shares |  |  | Weighted average exercise price per share |  |  | Number of shares |  |  | Weighted average exercise price per share |
Outstanding, beginning of period |  |  | - |  |  | $ | - |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |
Granted |  |  | 8,044,000 |  |  |  | 6.00 |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |
Exercised |  |  | - |  |  |  | - |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |
Forfeited |  |  | (438,381 | ) |  |  | 6.00 |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |
Expired |  |  | (101,350 | ) |  |  | 6.00 |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |
Outstanding, end of period |  |  | 7,504,269 |  |  |  | 6.00 |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |
Options exercisable, end of period |  |  | 3,156,281 |  |  | $ | 6.00 |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |
As of December 31, 2023, the exercise prices, weighted average remaining contractual life of outstanding options and intrinsic values were for Ting stock options were as follows:
|  | Options outstanding |  |  | Options exercisable |
Exercise price |  | Number outstanding |  |  | Weighted average exercise price per share |  |  | Weighted average remaining contractual life (years) |  |  | Aggregate intrinsic value |  |  | Number exercisable |  |  | Weighted average exercise price per share |  |  | Weighted average remaining contractual life (years) |  |  | Aggregate intrinsic value |
$0.00 - $6.00 |  |  | 7,504,269 |  |  | $ | 6.00 |  |  |  | 6.1 |  |  | $ | - |  |  |  | 3,156,281 |  |  | $ | 6.00 |  |  |  | 6.0 |  |  | $ | - |
|  |  | 7,504,269 |  |  | $ | 6.00 |  |  |  | 6.1 |  |  | $ | - |  |  |  | 3,156,281 |  |  | $ | 6.00 |  |  |  | 6.0 |  |  | $ | - |
Total unrecognized compensation cost relating to unvested stock options at December 31, 2023, prior to the consideration of expected forfeitures, is approximately $0.6 million and is expected to be recognized over a weighted average period of 2.5 years. Stock-based compensation for the Ting stock options has been included in operating expenses as follows (Dollar amounts in thousands of US dollars):
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Network expenses |  | $ | 45 |  |  | $ | - |  |  | $ | - |
Sales and marketing |  |  | 139 |  |  |  | - |  |  |  | - |
Technical operations and development |  |  | 6 |  |  |  | - |  |  |  | - |
General and administrative |  |  | 156 |  |  |  | - |  |  |  | - |
|  | $ | 346 |  |  | $ | - |  |  | $ | - |
The Company recorded stock-based compensation expense of $8.1 million for year ended December 31, 2023 and $7.6 million and $4.6 million for the years ended December 31, 2022 and December 31, 2021, respectively. The Company details of the stock-based compensation expense are as follows:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Company options |  | $ | 6,060 |  |  | $ | 5,779 |  |  | $ | 4,592 |
Wavelo options |  |  | 2,065 |  |  |  | 1,820 |  |  |  | - |
Ting options |  |  | 346 |  |  |  | - |  |  |  | - |
Capitalized stock based compensation |  |  | (337 | ) |  |  | - |  |  |  | - |
Total Stock Based Compensation expense |  | $ | 8,134 |  |  | $ | 7,599 |  |  | $ | 4,592 |
The Company capitalizes stock-based compensation costs directly attributable to the development of qualifying assets. Qualifying assets include internal use software (IUS), assets under construction (AUC), equipment, or other long-lived assets that meet the capitalization criteria prescribed by ASC 350. During the year ended December 31, 2023, the Company capitalized $0.3 million of stock based compensation directly attributable to the development of certain IUS assets.

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