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Note 13 - Segment Reporting
 3 Months Ended
Mar. 31, 2024
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"). 

 

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 March 31,

  

(In Thousands of US Dollars)

  

2024

    

2023

  
                 

Net Loss for the period

   $ (26,484 )   $ (19,083 )

Less:

                

Provision (recovery) for income taxes

     1,774       (1,710 )

Depreciation of property and equipment

     9,987       8,588  

Impairment and loss on disposition of property and equipment

     53       1,942  

Amortization of intangible assets

     1,679       2,872  

Interest expense, net

     11,879       7,880  

Stock-based compensation

     1,873       2,246  

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

     390       40  

Acquisition and other costs1

     3,051       255  
                 

Adjusted EBITDA

   $ 4,202     $ 3,030  

 

1 Acquisition and other costs represent transaction-related expenses and transitional expenses. 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, 2024

                                        
                                         

Net revenues

                                        

External revenues

   $ 14,102     $ 9,191     $ 61,882     $ 2,282     $ 87,457  

Intersegment revenues

     -       199       -       (199 )     -  

Total net revenues

     14,102       9,390       61,882       2,083       87,457  

Direct cost of revenues

     5,360       351       43,346       2,737       51,794  

Segment gross margin

     8,742       9,039       18,536       (654 )     35,663  
                                         

Network, other costs

                                     7,064  

Network, depreciation of property and equipment

                                     9,865  

Network, amortization of intangible assets

                                     365  

Network, impairment of property and equipment

                                     53  

Gross profit

                                     18,316  
                                         

Expenses:

                                        

Sales and marketing

                                     18,565  

Technical operations and development

                                     5,016  

General and administrative

                                     9,818  

Depreciation of property and equipment

                                     122  

Amortization of intangible assets

                                     1,314  

Total expenses

                                     34,835  
                                         

Loss from operations

                                     (16,519 )
                                         

Other income (expenses):

                                        

Interest expense, net

                                     (11,879 )

Income earned on sale of transferred assets

                                     3,621  

Other expense, net

                                     67  

Total other income (expense)

                                     (8,191 )
                                         

Loss before provision for income taxes

                                   $ (24,710 )
                                         

Adjusted EBITDA

   $ (9,537 )   $ 2,787     $ 10,011     $ 941     $ 4,202  

 

 

   

Ting

    

Wavelo

    

Tucows Domains

    

Tucows Corporate

    

Consolidated Totals

  

For the Three Months Ended March 31, 2023

                                        
                                         

Net revenues

                                        

External revenues

   $ 11,853     $ 6,642     $ 59,242     $ 2,693     $ 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       7,590       17,521       (1,839 )     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  

Amortization of intangible assets

                                     2,494  

Total expenses

                                     31,344  
                                         

Loss from operations

                                     (17,283 )
                                         

Other income (expenses):

                                        

Interest expense, net

                                     (7,880 )

Income earned on sale of transferred assets

                                     4,370  

Total other income (expense)

                                     (3,510 )
                                         

Loss before provision for income taxes

                                   $ (20,793 )
                                         

Adjusted EBITDA

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

 

(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, 2024     December 31, 2023  
                 

Canada

   $ 891     $ 943  

United States

     349,501       338,696  

Europe

     5       5  
    $ 350,397     $ 339,644  

 

(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, 2024     December 31, 2023  
                 

Canada

   $ 1,709     $ 1,864  

United States

     13,913       15,341  
    $ 15,622     $ 17,205  

 

(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, 2024

   $ 511     $ 4     $ -     $ 515  

Twelve months ended December 31, 2023

   $ 693     $ -     $ (182 )   $ 511