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Note 21 - Segment Reporting
 12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

21. 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 Adjusted EBITDA results as they are centrally managed and not monitored by or reported to our CEO by segment, including retail mobile 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 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 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 Adjusted 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 11 – 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 and eliminations

  

Consolidated Totals

 

Year Ended December 31, 2023

                    
                     

Net revenues

                    

External revenues

 $50,937  $35,979  $242,097  $10,324  $339,337 

Intersegment revenues

  -   2,691   -   (2,691)  - 

Total net revenues

  50,937   38,670   242,097   7,633   339,337 

Direct cost of revenues

  20,151   2,626   169,414   10,065   202,256 

Segment gross margin

  30,786   36,044   72,683   (2,432)  137,081 

Network, other costs

                  28,222 

Network, depreciation of property and equipment

                  35,864 

Network, amortization of intangible assets

                  1,506 

Network, impairment of property and equipment

                  4,822 

Gross profit

                  66,667 
                     

Expenses:

                    

Sales and marketing

                  67,806 

Technical operations and development

                  19,217 

General and administrative

                  33,406 

Depreciation of property and equipment

                  567 

Amortization of intangible assets

                  9,323 

Loss (gain) on currency forward contracts

                  - 

Total expenses

                  130,319 
                     

Loss from operations

                  (63,652)
                     

Other income (expenses):

                    

Interest expense

                  (46,256)

Interest income

                  4,485 

Loss on debt extinguishment

                  (14,680)

Income earned on sale of transferred assets, net

                  17,033 

Total other income (expenses)

                  (39,418)
                     

Loss before provision for income taxes

                 $(103,070)
                     

Adjusted EBITDA

 $(44,151) $10,573  $42,623  $6,406  $15,451 

 

  

Ting

  

Wavelo

  

Tucows Domains

  

Tucows Corporate and eliminations

  

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 (gain) on disposition of property and equipment

                  461 

Amortization of intangible assets

                  9,882 

Total expenses

                  109,910 
                     

Loss from operations

                  (31,662)
                     

Other income (expenses):

                    

Interest expense

                  (14,588)

Interest income

                  132 

Gain on sale of Ting customer assets, net

                  18,507 

Other expense, net

                  (177)

Total other income (expenses)

                  3,874 
                     

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 and eliminations

  

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

                  - 

Gain on currency forward contracts

                  (277)

Total expenses

                  86,066 
                     

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 before provision for income taxes

                 $7,270 
                     

Adjusted EBITDA

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

 

Reconciliation of Income before Provision for Income Taxes to Adjusted EBITDA

 

Twelve months ended December 31,

 

(In Thousands of US Dollars)

 

2023

  

2022

  

2021

 
             

Net Income (Loss) for the period

 $(96,197) $(27,571) $3,364 

Less:

            

Provision for income taxes

  (6,873)  (217)  3,906 

Depreciation of property and equipment

  36,431   28,187   17,986 

Impairment and loss on disposition of property and equipment

  4,822   553   435 

Amortization of intangible assets

  10,829   11,394   10,007 

Interest expense, net

  41,771   14,456   4,617 

Loss on debt extinguishment

  14,680   -   - 

Accretion of contingent liability

  -   248   383 

Stock-based compensation

  8,134   7,599   4,592 

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

  -   -   606 

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

  (62)  281   219 

Acquisition and other costs1

  1,916   2,660   2,706 
             

Adjusted EBITDA

 $15,451  $37,590  $48,821 

 

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 property and equipment by geographic region (Dollar amounts in thousands of US dollars): 

 

  

December 31, 2023

  

December 31, 2022

 
         

Canada

 $943  $1,240 

United States

  338,696   280,219 

Europe

  5   36 
  $339,644  $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): 

 

  

December 31, 2023

  

December 31, 2022

 
         

Canada

 $1,864  $2,736 

United States

  15,341   24,770 
  $17,205  $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

 
                 

Year Ended December 31, 2023

 $693  $  $(182) $511 

Year Ended December 31, 2022

 $541  $152  $-  $693