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Note 10 - Revenue
 9 Months Ended
Sep. 30, 2024
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]

10. Revenue:

 

Significant accounting policy

 

The Company’s revenues are derived from (a) the provisioning of retail fiber Internet services through Ting, (b) the CSP solutions and professional services through Wavelo; and from (c) domain name registration contracts, other domain related value-added services, domain sale contracts, and other advertising revenue through Tucows Domains Services. Certain revenues are disclosed under Tucows Corporate as they are considered non-core business activities including Mobile Retail Services, Transition Services Agreement ("TSA") revenue and eliminations of intercompany revenue. Amounts received in advance of meeting the revenue recognition criteria described below are recorded as deferred revenue. All products are generally sold without the right of return or refund.

 

Revenue is measured based on consideration specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

 

Nature of goods and services

 

The following is a description of principal activities – separated by reportable segments – from which the Company generates its revenue. For more detailed information about reportable segments, see Note 13 – Segment Reporting.

 

 

(a)

Ting

 

The Company generates Ting revenues primarily through the provisioning of fixed high-speed Internet access, Ting Internet.

 

Ting Internet contracts provide customers Internet access at their home or business through the installation and use of our fiber optic network. Ting Internet contracts are generally prepaid and grant customers with unlimited bandwidth based on a fixed price per month basis. Because consideration is collected before the service period, revenue is initially deferred and recognized as the Company performs its obligation to provide Internet access. Though the Company does not consider the installation of fixed Internet access to be a distinct performance obligation, the fees related to installation are immaterial and therefore revenue is recognized as billed.

 

Ting Internet access services are primarily contracted through the Ting website, for one month at a time and contain no commitment to renew the contract following each customer’s monthly billing cycle. The Company’s billing cycle for all Ting Internet customers is computed based on the customer’s activation date. In addition, revenues associated with the sale of Internet hardware to subscribers are recognized when title and risk of loss is transferred to the subscriber and shipment has occurred. Incentive marketing credits given to customers are recorded as a reduction of revenue.

 

In those cases, where payment is not received at the time of sale, revenue is not recognized at contract inception unless the collection of the related accounts receivable is reasonably assured. The Company records costs that reflect expected refunds, rebates and credit card charge-backs as a reduction of revenues at the time of the sale based on historical experiences and current expectations.

 

 

(b)

Wavelo

 

The Company generates Wavelo revenues by providing billing and provisioning platform services to CSPs to whom we also provide other professional services. 

 

Platform service agreements contain both platform services and professional services. Platform services offer a variety of solutions that support CSPs, including subscription and billing management, network orchestration and provisioning, and individual developer tools through a single, cloud based service. Consideration under platform service arrangements includes both a variable component that changes each month depending on the number of subscribers hosted on the platform, as well as platform payments and credits. The Company estimates platform payment and credit consideration over the term of the contract and recognizes the portion related to platform services evenly over the term of the contract. The Company recognizes variable subscriber fees, as the fees are invoiced. Platform services represent a single promise to provide continuous access (i.e. a stand-ready performance obligation) to the platform. As each month of providing access to the platform is substantially the same and the customer simultaneously receives and consumes the benefits as access is provided, the performance obligation consists of a series of distinct service periods. Professional services provided under platform service arrangements can include implementation, training, consulting or software development/modification services. Revenues related to professional services are distinct from the other promises in the contract(s) and are recognized as the related services are performed, on the basis of hours consumed. Platform payment and credit consideration is allocated between the platform services and professional services performance obligations by estimating the standalone selling price (“SSP”) of each performance obligation. The Company estimates the SSP of professional services based on observable standalone sales. The SSP of platform services is derived using the residual approach by estimating the total contract consideration and subtracting the SSP of professional services. Total contract consideration is estimated at contract inception, considering any constraints that may apply and updating the estimates as new information becomes available. Intercompany revenues earned for provision of services on the ISOS and SM platforms between Wavelo and Ting are included in Wavelo's segment revenues for purposes of segment analysis, but are ultimately eliminated upon consolidation. The elimination impact is presented below in Tucows Corporate - Mobile Services and Eliminations.

 

Other professional services consist of professional service arrangements with platform services customers which are billed based on separate Statement of Work (“SOW”) arrangements for bespoke feature development. Revenues for professional services contracted through separate SOWs are recognized at a point-in-time when the final acceptance criteria have been met. 

 

 

(c)

Tucows Domains

 

Domain registration contracts, which can be purchased for terms of one to ten years, provide our resellers and retail registrant customers with the exclusive right to a personalized internet address from which to build an online presence. The Company enters into domain registration contracts in connection with each new, renewed and transferred-in domain registration. At the inception of the contract, the Company charges and collects the registration fee for the entire registration period. Though fees are collected upfront, revenue from domain registrations are recognized ratably over the registration period as domain registration contracts contain a ‘right to access’ license of IP, which is a distinct performance obligation measured over time. The registration period begins once the Company has confirmed that the requested domain name has been appropriately recorded in the registry under contractual performance standards.

 

Domain related value-added services like digital certifications, WHOIS privacy, website hosting and hosted email provide our resellers and retail registrant customers with tools and additional functionality to be used in conjunction with domain registrations. All domain related value-added services are considered distinct performance obligations which transfer the promised service to the customer over the contracted term. Fees charged to customers for domain related value-added services are collected at the inception of the contract, and revenue is recognized on a straight-line basis over the contracted term, consistent with the satisfaction of the performance obligations.

 

The Company is an ICANN accredited registrar. Thus, the Company is the primary obligor with our reseller and retail registrant customers and is responsible for the fulfillment of our registrar services to those parties. As a result, the Company reports revenue in the amount of the fees we receive directly from our reseller and retail registrant customers. Our reseller customers maintain the primary obligor relationship with their retail customers, establish pricing and retain credit risk to those customers. Accordingly, the Company does not recognize any revenue related to transactions between our reseller customers and their ultimate retail customers.

 

The Company also sells the rights to the Company’s portfolio domains or names acquired through the Company’s domain expiry stream. Revenue generated from sale of domain name contracts, containing a distinct performance obligation to transfer the domain name rights under the Company’s control, is generally recognized once the rights have been transferred and payment has been received in full.

 

Advertising revenue is derived through domain parking monetization, whereby the Company contracts with third-party Internet advertising publishers to direct web traffic from the Company’s domain expiry stream domains and Internet portfolio domains to advertising websites. Compensation from Internet advertising publishers is calculated variably on a cost-per-action basis based on the number of advertising links that have been visited in a given month. Given that the variable consideration is calculated and paid on a monthly basis, no estimation of variable consideration is required.

 

Disaggregation of Revenue

 

The following is a summary of the Company’s revenue earned from each significant revenue stream (Dollar amounts in thousands of U.S. dollars):

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2024

  

2023

  

2024

  

2023

 

Ting:

                

Fiber Internet Services

 $15,310  $12,855  $43,983  $37,116 
                 

Wavelo:

                

Platform Services

  10,075   10,697   29,935   27,537 

Other Professional Services

  7   377   38   1,588 

Total Wavelo

  10,082   11,074   29,973   29,125 
                 

Tucows Domains

                

Wholesale

                

Domain Services

  49,871   47,657   146,527   140,734 

Value Added Services

  5,175   4,252   14,402   13,441 

Total Wholesale

  55,046   51,909   160,929   154,175 
                 

Retail

  9,669   9,179   28,036   26,111 

Total Tucows Domains

  64,715   61,088   188,965   180,286 
                 

Tucows Corporate:

                

Mobile services and eliminations

  2,190   1,954   6,256   5,852 
                 
  $92,297  $86,971  $269,177  $252,379 

 

One customer in the Company's Wavelo operating segment accounted for 11% ($9.8 million) and 11% ($29.2 million) of total revenue during the three and nine months ended September 30, 2024, respectively.

 

Comparatively, one customer in the Company's Wavelo operating segment accounted for 14% ($11.1 million) and 11% ($29.1 million) of total revenue amounting during the three and nine months ended September 30, 2023, respectively.

 

At September 30, 2024, one customer represented 47% of accounts receivables. As of December 31, 2023, one customer represented 39% of total accounts receivable. 

 

The following is a summary of the Company’s cost of revenue from each significant revenue stream (Dollar amounts in thousands of U.S. dollars): 

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2024

  

2023

  

2024

  

2023

 
                 

Ting:

                

Fiber Internet Services

 $4,321  $4,869  $14,434  $14,211 
                 

Wavelo:

                

Platform Services

  63   342  

727

   1,006 

Other Professional Services

  -   228  

26

   1,289 

Total Wavelo

  63   570  

753

   2,295 
                 

Tucows Domains:

                

Wholesale

                

Domain Services

  40,180   38,060  

117,764

   112,352 

Value Added Services

  509   537  

1,576

   1,726 

Total Wholesale

  40,689   38,597  

119,340

   114,078 
                 

Retail

  4,216   4,116  

12,410

   12,383 

Total Tucows Domains

  44,905   42,713  

131,750

   126,461 
                 

Tucows Corporate:

                

Mobile services and eliminations

  3,324   2,565  

8,798

   7,783 
                 

Network Expenses:

                

Network, other costs

  6,864   7,322  

20,790

   20,638 

Network, depreciation of property and equipment

  9,414   9,138  

29,336

   26,331 

Network, amortization of intangible assets

  366   378  

1,097

   1,135 

Network, impairment of property and equipment

  852   2,663  

905

   4,679 

Total Network Expenses

  17,496   19,501  

52,128

   52,783 
                 
  $70,109  $70,218  $207,863  $203,533 

 

During the three and nine months ended September 30, 2024, Network expenses included $0.9 million and $0.9 million of impairment of property and equipment, respectively.

 

During the three and nine months ended September 30, 2023, Network expenses included impairment of property and equipment of $2.7 million and $4.7 million, respectively. The impairment losses related to specific network assets that were identified as being damaged and no longer in use. The full cost of the identified assets was recorded as an impairment loss.   

 

Contract Balances

 

The following tables provide information about contract assets and contract liabilities (deferred revenue) from contracts with customers. The Company accounts for contract assets and liabilities on a contract-by-contract basis, with each contract presented as either a net contract asset or a net contract liability accordingly.

 

Some of the Company’s long-term contracts with customers are billed in advance of service, such as domain contracts and some professional service contracts. Consideration received from customers related to performance obligations which have not yet been satisfied are contract liabilities and recorded as deferred revenues.

 

Deferred revenue primarily relates to the portion of the transaction price received in advance related to the unexpired term of domain name registrations and other domain related value-added services, on both a wholesale and retail basis, net of external commissions. 

 

Significant changes in deferred revenue for the nine months ended September 30, 2024 were as follows (Dollar amounts in thousands of U.S. dollars): 

 

Deferred revenue:

 

  September 30, 2024 
     

Balance, beginning of period

 $148,083 

Deferred revenue

  181,583 

Recognized revenue

  (173,637)

Balance, end of period

 $156,029 

 

The Company receives consideration for long-term mobile platform service contracts, which we collect variably each month depending on the number of subscribers hosted on the platform (subject to certain minimums) as well as through certain fixed platform fees and credits. Contract assets are recorded for services delivered under long-term mobile platform services contracts, to the extent that the services delivered exceed the services which have been billed to the customer at the reporting date. Contract assets are transferred to receivables when the rights to consideration become unconditional. All contract assets transfer to receivables within three months of when they are recognized. Significant changes in the contract assets for the nine months ended September 30, 2024 were as follows (Dollar amounts in thousands of U.S dollars):

 

Contract assets:

  

September 30, 2024

 
     

Balance, beginning of period

 $1,417 

Consideration recognized as revenue

  3,000 

Transferred to receivables

  (4,417)

Balance, end of period

 $- 

 

Remaining Performance Obligations

 

For retail mobile and internet access services, where the performance obligation is part of contracts that have an original expected duration of one year or less (typically one month), the Company has elected to apply a practical expedient to not disclose revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied).

 

Although domain registration contracts are deferred over the lives of the individual contracts, which can range from one to ten years, approximately 80 percent of our deferred revenue balance related to domain contracts is expected to be recognized within the next twelve months.

 

Deferred revenue related to Exact hosting contracts is also deferred over the lives of the individual contracts, which are expected to be fully recognized within the next twelve months. 

 

Professional service revenue related to platform services may be deferred over the period not exceeding the term of the contract.