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

    

Six Months Ended June 30,

  

(In Thousands of US Dollars)

  

2024

    

2023

    

2024

    

2023

  
                                 

Net Loss for the period

   $ (18,604 )   $ (30,968 )   $ (45,088 )   $ (50,051 )

Less:

                                

Provision (recovery) for income taxes

     1,220       (3,025 )     2,994       (4,735 )

Depreciation of property and equipment

     10,173       8,907       20,160       17,495  

Impairment and loss on disposition of property and equipment

     -       74       53       2,016  

Amortization of intangible assets

     1,201       2,609       2,880       5,481  

Interest expense, net

     12,553       10,501       24,432       18,381  

Loss on debt extinguishment

     -       14,680       -       14,680  

Stock-based compensation

     1,702       2,052       3,575       4,298  

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

     164       (126 )     554       (84 )

Acquisition and other costs1

     769       691       3,820       944  
                                 

Adjusted EBITDA

   $ 9,178     $ 5,395     $ 13,380     $ 8,425  

 

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 June 30, 2024

                                        
                                         

Net revenues

                                        

External revenues

   $ 14,571     $ 10,291     $ 62,368     $ 2,193     $ 89,423  

Intersegment revenues

     -       210       -       (210 )     -  

Total net revenues

     14,571       10,501       62,368       1,983       89,423  

Direct cost of revenues

     4,753       339       43,499       2,737       51,328  

Segment gross margin

     9,818       10,162       18,869       (754 )     38,095  
                                         

Network, other costs

                                     6,862  

Network, depreciation of property and equipment

                                     10,057  

Network, amortization of intangible assets

                                     366  

Network, impairment of property and equipment

                                     -  

Gross profit

                                     20,810  
                                         

Expenses:

                                        

Sales and marketing

                                     14,746  

Technical operations and development

                                     4,522  

General and administrative

                                     9,188  

Depreciation of property and equipment

                                     116  

Amortization of intangible assets

                                     835  

Total expenses

                                     29,407  
                                         

Loss from operations

                                     (8,597 )
                                         

Other income (expenses):

                                        

Interest expense, net

                                     (12,553 )

Income earned on sale of transferred assets

                                     3,357  

Other expense, net

                                     409  

Total other income (expense)

                                     (8,787 )
                                         

Loss before provision for income taxes

                                   $ (17,384 )
                                         

Adjusted EBITDA

   $ (6,442 )   $ 3,911     $ 11,217     $ 492     $ 9,178  

 

   

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  

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  

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 Six Months Ended June 30, 2024

                                        
                                         

Net Revenues

                                        

External Revenues

   $ 28,673     $ 19,481     $ 124,250     $ 4,476     $ 176,880  

Intersegment Revenues

     -       410       -       (410 )     -  

Total Net Revenues

     28,673       19,891       124,250       4,066       176,880  

Direct cost of revenues

     10,113       690       86,845       5,474       103,122  

Segment gross margin

     18,560       19,201       37,405       (1,408 )     73,758  
                                         

Network, other costs

                                     13,926  

Network, depreciation of property and equipment

                                     19,922  

Network, amortization of intangible assets

                                     731  

Network, impairment of property and equipment

                                     53  

Gross profit

                                     39,126  
                                         

Expenses:

                                        

Sales and marketing

                                     33,311  

Technical operations and development

                                     9,538  

General and administrative

                                     19,006  

Depreciation of property and equipment

                                     238  

Amortization of intangible assets

                                     2,149  

Total expenses

                                     64,242  
                                         

Loss from operations

                                     (25,116 )
                                         

Other income (expenses):

                                        

Interest expense, net

                                     (24,432 )

Loss on debt extinguishment

                                     -  

Income earned on sale of transferred assets, net

                                     6,978  

Other expense, net

                                     476  

Total other income (expense)

                                     (16,978 )
                                         

Loss before provision for income taxes

                                   $ (42,094 )
                                         

Adjusted EBITDA

   $ (15,979 )   $ 6,698     $ 21,228     $ 1,433     $ 13,380  

 

   

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  

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

                                     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  

 

(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, 2024     December 31, 2023  
                 

Canada

   $ 946     $ 943  

United States

     353,282       338,696  

Europe

     4       5  
    $ 354,232     $ 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): 

 

    June 30, 2024     December 31, 2023  
                 

Canada

   $ 1,554     $ 1,864  

United States

     12,869       15,341  
    $ 14,423     $ 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 (recovery) during period

    

Balance at end of period

  
                                 

Six Months Ended June 30, 2024

   $ 511     $ 18     $ (83 )   $ 446  

Twelve months ended December 31, 2023

   $ 693     $ -     $ (182 )   $ 511