| Price | 54.57 | EPS | 1 | |
| Shares | 11 | P/E | 42 | |
| MCap | 589 | P/FCF | 22 | |
| Net Debt | 94 | EBIT | 21 | |
| TEV | 683 | TEV/EBIT | 32 | TTM 2019-09-30, in MM, except price, ratios |
| 10-Q | 2021-03-31 | Filed 2021-05-06 |
| 10-K | 2020-12-31 | Filed 2021-03-03 |
| 10-Q | 2020-09-30 | Filed 2020-11-05 |
| 10-Q | 2020-06-30 | Filed 2020-08-06 |
| 10-Q | 2020-03-31 | Filed 2020-05-07 |
| 10-K | 2019-12-31 | Filed 2020-03-04 |
| 10-Q | 2019-09-30 | Filed 2019-11-06 |
| 10-Q | 2019-06-30 | Filed 2019-08-07 |
| 10-Q | 2019-03-31 | Filed 2019-05-08 |
| 10-K | 2018-12-31 | Filed 2019-03-05 |
| 10-Q | 2018-09-30 | Filed 2018-11-07 |
| 10-Q | 2018-06-30 | Filed 2018-08-08 |
| 10-Q | 2018-03-31 | Filed 2018-05-09 |
| 10-K | 2017-12-31 | Filed 2018-03-06 |
| 10-Q | 2017-09-30 | Filed 2017-11-09 |
| 10-Q | 2017-06-30 | Filed 2017-08-09 |
| 10-Q | 2017-03-31 | Filed 2017-05-10 |
| 10-K | 2016-12-31 | Filed 2017-03-08 |
| 10-Q | 2016-09-30 | Filed 2016-11-08 |
| 10-Q | 2016-06-30 | Filed 2016-08-08 |
| 10-Q | 2016-03-31 | Filed 2016-05-10 |
| 10-K | 2015-12-31 | Filed 2016-03-09 |
| 10-Q | 2015-09-30 | Filed 2015-11-06 |
| 10-Q | 2015-06-30 | Filed 2015-08-10 |
| 10-Q | 2015-03-31 | Filed 2015-05-08 |
| 10-K | 2014-12-31 | Filed 2015-03-11 |
| 10-Q | 2014-09-30 | Filed 2014-11-12 |
| 10-Q | 2014-06-30 | Filed 2014-08-13 |
| 10-Q | 2014-03-31 | Filed 2014-05-14 |
| 10-K | 2013-12-31 | Filed 2014-03-18 |
| 10-Q | 2013-09-30 | Filed 2013-11-13 |
| 10-Q | 2013-06-30 | Filed 2013-08-09 |
| 10-Q | 2013-03-31 | Filed 2013-05-15 |
| 10-K | 2012-12-31 | Filed 2013-03-15 |
| 10-Q | 2012-09-30 | Filed 2012-11-14 |
| 10-Q | 2012-06-30 | Filed 2012-08-14 |
| 10-Q | 2012-03-31 | Filed 2012-05-11 |
| 10-K | 2011-12-31 | Filed 2012-03-16 |
| 10-Q | 2011-09-30 | Filed 2011-11-10 |
| 10-Q | 2011-06-30 | Filed 2011-08-11 |
| 10-Q | 2011-03-31 | Filed 2011-05-13 |
| 10-K | 2010-12-31 | Filed 2011-03-22 |
| 10-Q | 2010-09-30 | Filed 2010-11-12 |
| 10-Q | 2010-06-30 | Filed 2010-08-13 |
| 10-Q | 2010-03-31 | Filed 2010-05-14 |
| 10-K | 2009-12-31 | Filed 2010-03-22 |
| 8-K | 2020-11-05 | |
| 8-K | 2020-09-08 | |
| 8-K | 2020-08-06 | |
| 8-K | 2020-08-01 | |
| 8-K | 2020-05-07 | |
| 8-K | 2020-02-12 | |
| 8-K | 2020-02-12 | |
| 8-K | 2019-11-27 | |
| 8-K | 2019-11-06 | |
| 8-K | 2019-09-09 | |
| 8-K | 2019-08-07 | |
| 8-K | 2019-07-02 | |
| 8-K | 2019-06-14 | |
| 8-K | 2019-05-31 | |
| 8-K | 2019-05-08 | |
| 8-K | 2019-03-18 | |
| 8-K | 2019-02-13 | |
| 8-K | 2019-02-13 | |
| 8-K | 2018-11-07 | |
| 8-K | 2018-09-04 | |
| 8-K | 2018-08-08 | |
| 8-K | 2018-05-09 | |
| 8-K | 2018-02-14 | |
| 8-K | 2018-02-14 | |
| 8-K | 2018-01-24 | |
| 8-K | 2018-01-05 |
| Item 1. Consolidated Financial Statements |
| EX-31.1 | ex_234442.htm |
| EX-31.2 | ex_234443.htm |
| EX-32.1 | ex_234444.htm |
| EX-32.2 | ex_234445.htm |
| Balance Sheet | Income Statement | Cash Flow |
|---|---|---|
|
Assets, Equity
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Rev, G Profit, Net Income
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Ops, Inv, Fin
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
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| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
TUCOWS INC.
(Exact Name of Registrant as Specified in Its Charter)
| | |
| (State or Other Jurisdiction of | (I.R.S. Employer |
| Incorporation or Organization) | Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
(
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
| |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T §232.405 of this chapter during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | |
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| Non-accelerated filer ☐ | Smaller reporting company |
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| Emerging Growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
As of May 3, 2021, there were
Form 10-Q Quarterly Report
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TRADEMARKS, TRADE NAMES AND SERVICE MARKS
Tucows®, EPAG®, Hover®, OpenSRS®, Platypus®, Ting®, eNom®, Roam®, Roam Mobility®, Bulkregister®, Ascio®, Cedar®, and YummyNames® are registered trademarks of Tucows Inc. or its subsidiaries. Other service marks, trademarks and trade names of Tucows Inc. or its subsidiaries may be used in this Quarterly Report on Form 10-Q (this “Quarterly Report”). All other service marks, trademarks and trade names referred to in this Quarterly Report are the property of their respective owners. Solely for convenience, any trademarks referred to in this Quarterly Report may appear without the ® or TM symbol, but such references are not intended to indicate, in any way, that we or the owner of such trademark, as applicable, will not assert, to the fullest extent under applicable law, our or its rights, or the right of the applicable licensor, to these trademarks.
Item 1. Consolidated Financial Statements
Tucows Inc.
Consolidated Balance Sheets
(Dollar amounts in thousands of U.S. dollars)
(unaudited)
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of as of March 31, 2021 and as of December 31, 2020 | ||||||||
| Inventory | ||||||||
| Prepaid expenses and deposits | ||||||||
| Derivative instrument asset, current portion (note 5) | ||||||||
| Deferred costs of fulfillment, current portion (note 11) | ||||||||
| Income taxes recoverable | ||||||||
| Total current assets | ||||||||
| Deferred costs of fulfillment, long-term portion (note 11) | ||||||||
| Derivative instrument asset, long-term portion (note 5) | ||||||||
| Deferred tax asset | ||||||||
| Property and equipment | ||||||||
| Right of use operating lease asset | ||||||||
| Contract costs | ||||||||
| Intangible assets (note 6) | ||||||||
| Goodwill (note 6) | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Customer deposits | ||||||||
| Derivative instrument liability, current portion (note 5) | ||||||||
| Operating lease liability, current portion (note 12) | ||||||||
| Deferred revenue, current portion (note 10) | ||||||||
| Accreditation fees payable, current portion | ||||||||
| Income taxes payable | ||||||||
| Total current liabilities | ||||||||
| Derivative instrument liability, long-term portion (note 5) | ||||||||
| Deferred revenue, long-term portion (note 10) | ||||||||
| Accreditation fees payable, long-term portion | ||||||||
| Operating lease liability, long-term portion (note 12) | ||||||||
| Loan payable, long-term portion (note 7) | ||||||||
| Other long-term liability (note 4) | ||||||||
| Deferred tax liability | ||||||||
| Stockholders' equity (note 14) | ||||||||
| Preferred stock - par value, shares authorized; issued and outstanding | ||||||||
| Common stock - par value, shares authorized; shares issued and outstanding as of March 31, 2021 and shares issued and outstanding as of December 31, 2020 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income (note 5) | ||||||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
| Contingencies (note 18) | ||||||||
See accompanying notes to consolidated financial statements
Consolidated Statements of Operations and Comprehensive Income
(Dollar amounts in thousands of U.S. dollars, except per share amounts)
(unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Net revenues (note 10) | $ | $ | ||||||
| Cost of revenues (note 10) | ||||||||
| Direct cost of revenues | ||||||||
| Network expenses | ||||||||
| Depreciation of property and equipment | ||||||||
| Amortization of intangible assets (note 6) | ||||||||
| Impairment of property and equipment | ||||||||
| Total cost of revenues | ||||||||
| Gross profit | ||||||||
| Expenses: | ||||||||
| Sales and marketing | ||||||||
| Technical operations and development | ||||||||
| General and administrative | ||||||||
| Depreciation of property and equipment | ||||||||
| Amortization of intangible assets (note 6) | ||||||||
| Loss (gain) on currency forward contracts (note 5) | ( | ) | ||||||
| Total expenses | ||||||||
| Income from operations | ( | ) | ||||||
| Other income (expenses): | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Gain on sale of Ting customer assets, net (note 17) | ||||||||
| Other expense, net | ( | ) | ( | ) | ||||
| Total other income (expenses) | ( | ) | ||||||
| Income before provision for income taxes | ||||||||
| Provision for income taxes (note 8) | ||||||||
| Net income for the period | ||||||||
| Other comprehensive income, net of tax | ||||||||
| Unrealized income (loss) on hedging activities (note 5) | ( | ) | ||||||
| Net amount reclassified to earnings (note 5) | ( | ) | ||||||
| Other comprehensive income (loss) net of tax expense (recovery) of and for the three months ended March 31, 2021 and March 31, 2020, respectively (note 5) | ( | ) | ( | ) | ||||
| Comprehensive income, net of tax for the period | $ | $ | ||||||
| Basic earnings per common share (note 9) | $ | $ | ||||||
| Shares used in computing basic earnings per common share (note 9) | ||||||||
| Diluted earnings per common share (note 9) | $ | $ | ||||||
| Shares used in computing diluted earnings per common share (note 9) | ||||||||
See accompanying notes to consolidated financial statements
Consolidated Statements of Cash Flows
(Dollar amounts in thousands of U.S. dollars)
(unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash provided by: | ||||||||
| Operating activities: | ||||||||
| Net income for the period | $ | $ | ||||||
| Items not involving cash: | ||||||||
| Depreciation of property and equipment | ||||||||
| Impairment of property and equipment | ||||||||
| Amortization of debt discount and issuance costs | ||||||||
| Amortization of intangible assets | ||||||||
| Net amortization contract costs | ( | ) | ||||||
| Accretion of contingent consideration | ||||||||
| Deferred income taxes (recovery) | ( | ) | ( | ) | ||||
| Excess tax benefits on share-based compensation expense | ( | ) | ( | ) | ||||
| Net Right of use operating assets/Operating lease liability | ( | ) | ||||||
| Loss on disposal of domain names | ||||||||
| Loss (gain) on change in the fair value of forward contracts | ||||||||
| Stock-based compensation | ||||||||
| Change in non-cash operating working capital: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and deposits | ||||||||
| Deferred costs of fulfillment | ( | ) | ( | ) | ||||
| Income taxes recoverable | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued liabilities | ( | ) | ||||||
| Customer deposits | ||||||||
| Deferred revenue | ||||||||
| Accreditation fees payable | ||||||||
| Net cash provided by operating activities | ||||||||
| Financing activities: | ||||||||
| Proceeds received on exercise of stock options | ||||||||
| Payment of tax obligations resulting from net exercise of stock options | ( | ) | ( | ) | ||||
| Repurchase of common stock | ( | ) | ||||||
| Payment of loan payable costs | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Investing activities: | ||||||||
| Additions to property and equipment | ( | ) | ( | ) | ||||
| Acquisition of Cedar Holdings Group, net of cash of (note 4) | ( | ) | ||||||
| Acquisition of intangible assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Increase (decrease) in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid, net | $ | $ | ||||||
| Supplementary disclosure of non-cash investing and financing activities: | ||||||||
| Property and equipment acquired during the period not yet paid for | $ | $ | ||||||
| Fair value of shares issued for acquisition of Cedar Holdings Group | $ | $ | ||||||
| Fair value of contingent consideration for acquisition of Cedar Holdings Group | $ | $ | ||||||
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
1. Organization of the Company:
Tucows Inc. (referred to throughout this report as the “Company”, “Tucows”, “we”, “us” or through similar expressions) provides simple useful services that help people unlock the power of the Internet. The Company provides US consumers and small businesses with high-speed fixed Internet access in selected towns. The Company also offers Mobile Service Enabler ("MSE") solutions and professional services to retail mobile providers as well as its own retail mobile phone services. The Company is also a global distributor of Internet services, including domain name registration, digital certificates, and email. It provides these services primarily through a global Internet-based distribution network of Internet Service Providers, web hosting companies and other providers of Internet services to end-users.
2. Basis of Presentation:
The accompanying unaudited interim consolidated balance sheets, and the related consolidated statements of operations and comprehensive income and cash flows reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair presentation of the financial position of Tucows and its subsidiaries as at March 31, 2021 and the results of operations and cash flows for the interim periods ended March 31, 2021 and 2020. The results of operations presented in this Quarterly Report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for future periods.
The accompanying unaudited interim consolidated financial statements have been prepared by Tucows in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in the Company's annual audited consolidated financial statements and accompanying notes have been condensed or omitted. Other than the exception noted below, these interim consolidated financial statements and accompanying notes follow the same accounting policies and methods of application used in the annual financial statements and should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2020 included in Tucows' 2020 Annual Report on Form 10-K filed with the SEC on March 3, 2021 (the “2020 Annual Report”). There have been no material changes to our significant accounting policies and estimates during the three months ended March 31, 2021 as compared to the significant accounting policies and estimates described in our 2020 Annual Report, except as described in Note 3 – Recent Accounting Pronouncements, Note 13 - Segment Reporting.
3. Recent Accounting Pronouncements:
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional guidance for a limited period of time to ease the potential burden of reference rate reform on financial reporting. The amendments in ASU 2020-04 apply to contract modifications that replace a reference rate affected by reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate. The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance:
| 1. | Modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate. | |
| 2. | Modifications of contracts within the scope of Topic 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required under those Topics for modifications not accounted for as separate contracts. | |
| 3. | Modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Subtopic 815-15, Derivatives and Hedging— Embedded Derivatives |
The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently charged interest and standby fees associated with its Amended 2019 Credit Facility (as defined below) based on LIBOR which are partially hedged by interest rate swaps, which are also based on LIBOR. Both the credit facility agreement and the interest rate swaps will need to be amended when an alternative reference rate is chosen, at which time we may adopt some of the practical expedients provided by ASU 2020-04.
4. Acquisitions:
On January 1, 2020, the Company entered into a Stock Purchase Agreement to purchase all of the issued and outstanding shares of Cedar Holdings Group, Incorporated (“Cedar”), a fiber Internet provider business based in Durango, Colorado. For more information, see Note 3 - Acquisitions of the 2020 Annual Report.
| Maturity date (Dollar amounts in thousands of U.S. dollars) | Notional amount of U.S. dollars | Weighted average exchange rate of U.S. dollars | Fair value Asset / (Liability) | |||||||||
| April - June 2021 | ||||||||||||
| July - September 2021 | ||||||||||||
| $ | $ | |||||||||||
As of March 31, 2021 and December 31, 2020, the notional amount of the Company's interest rate swap designated as a cash flow hedge was $
The effect of these derivative instruments on our consolidated financial statements were as follows (amounts presented do not include any income tax effects).
| Derivatives (Dollar amounts in thousands of U.S. dollars) | Balance Sheet Location | As of March 31, 2021 Fair Value Asset (Liability) | As of December 31, 2020 Fair Value Asset (Liability) | |||||||
| Foreign Currency forward contracts designated as cash flow hedges (net) | Derivative instruments | $ | $ | |||||||
| Interest rate swap contract designated as a cash flow hedge (net) | Derivative instruments | ( | ) | $ | ( | ) | ||||
| Foreign Currency forward contracts not designated as cash flow hedges (net) | Derivative instruments | |||||||||
| Total foreign currency and interest swap forward contracts (net) | Derivative instruments | $ | $ | |||||||
Movement in accumulated other comprehensive income (AOCI) balance for the three months ended March 31, 2021 (Dollar amounts in thousands of U.S. dollars)
| Gains and losses on cash flow hedges | Tax impact | Total AOCI | ||||||||||
| Opening AOCI balance - December 31, 2020 | $ | $ | ( | ) | $ | |||||||
| Other comprehensive income (loss) before reclassifications | ( | ) | ||||||||||
| Amount reclassified from AOCI | ( | ) | ( | ) | ||||||||
| Other comprehensive income (loss) for the three months ended March 31, 2021 | ( | ) | ( | ) | ||||||||
| Ending AOCI Balance - March 31, 2021 | $ | $ | ( | ) | $ | |||||||
| Derivatives in Cash Flow Hedging Relationship | Amount of Gain or (Loss) Recognized in OCI, net of tax, on Derivative | Location of Gain or (Loss) Reclassified from AOCI into Income | Amount of Gain or (Loss) Reclassified from AOCI into Income | ||||||
| Operating expenses | $ | ||||||||
| Foreign currency forward contracts for the three months ended March 31, 2021 | $ | ( | ) | Cost of revenues | $ | ||||
| Interest rate swap contract for the three months ended March 31, 2021 | $ | Interest expense, net | $ | ( | ) | ||||
| Operating expenses | $ | ( | ) | ||||||
| Foreign currency forward contracts for the three months ended March 31, 2020 | $ | ( | ) | Cost of revenues | $ | ( | ) | ||
| Interest rate swap contract for the three months ended March 31, 2020 | $ | - | Interest expense, net | $ | - | ||||
In addition to the above, for those foreign currency forward contracts not designated as hedges, the Company recorded the following fair value adjustments on settled and outstanding contracts (Dollar amounts in thousands of U.S. dollars):
| Three Months Ended March 31, | ||||||||
| Forward currency contracts not designated as hedges: | 2021 | 2020 | ||||||
| Gain (loss) on settlement | $ | $ | ( | ) | ||||
| Gain (loss) on change in fair value | $ | ( | ) | $ | ( | ) | ||
| Surname domain names | Direct navigation domain names | Brand | Customer relationships | Technology | Network rights | Total | ||||||||||||||||||||||
| Amortization period | indefinite life | indefinite life | 7 years | 3 - 7 years | 2 - 7 years | 15 years | ||||||||||||||||||||||
| Balances, December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Acquisition of customer relationships | - | - | - | - | - | |||||||||||||||||||||||
| Additions to/(disposals from) domain portfolio, net | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||||||
| Amortization expense | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Balances, March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Year ending | ||||
| December 31, | ||||
| Remainder of 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total | $ | |||
7. Loan Payable:
The Amended 2019 Credit Facility replaced a secured Credit Agreement dated January 20, 2017 with Bank of Montreal, RBC and Bank of Nova Scotia (as amended, the “2017 Amended Credit Facility”).
| If Total Funded Debt to EBITDA is: | ||||||||||||||||
| Availment type or fee | Less than 1.00 | Greater than or equal to 1.00 and less than 2.00 | Greater than or equal to 2.00 and less than 2.50 | Greater than or equal to 2.50 | ||||||||||||
| Canadian dollar borrowings based on Bankers’ Acceptance or U.S. dollar borrowings based on LIBOR (Margin) | % | % | % | % | ||||||||||||
| Canadian or U.S. dollar borrowings based on Prime Rate or U.S. dollar borrowings based on Base Rate (Margin) | % | % | % | % | ||||||||||||
| Standby fees | % | % | % | % | ||||||||||||
| March 31, 2021 | December 31, 2020 | |||||||
| Revolver | $ | $ | ||||||
| Less: unamortized debt discount and issuance costs | ( | ) | ( | ) | ||||
| Total loan payable | ||||||||
| Less: loan payable, current portion | ||||||||
| Loan payable, long-term portion | $ | $ | ||||||
| Remainder of 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| $ |
For the three months ended March 31, 2021, we recorded an income tax expense of $
Comparatively, for the three months ended March 31, 2020, the Company recorded an income tax expense of $
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the years in which those temporary differences become deductible. Management considers projected future taxable income, uncertainties related to the industry in which the Company operates, and tax planning strategies in making this assessment.
In connection with the eNom acquisition in 2017, we acquired deferred tax liabilities primarily composed of prepaid registry fees. As a result, we aligned our tax methodology pertaining to the deductibility of prepaid registry fees for our other subsidiaries. In the first quarter of 2019, we determined that we were in technical violation with respect to the administrative application of the accounting method change relating to the deductibility of prepaid registry fees for these additional subsidiaries. In February 2019, the Company filed an application for relief ("9100 Relief") to correct the issue. In November 2019, the Company was granted 9100 Relief and was given 30 days to file the appropriate forms based on prescribed instructions. The Company filed the forms in December 2019 and now awaits the final IRS response and acceptance of the change in accounting method. Management is of the view that it is more likely than not that the IRS will accept the 9100 Relief and filing of the prescribed forms. As such, no additional tax uncertainties or related interest or penalties have been recorded as at March 31, 2021.
The Company recognizes accrued interest and penalties related to income taxes in income tax expense. The Company did have significant interest and penalties accrued at March 31, 2021 and December 31, 2020, respectively.
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Numerator for basic and diluted earnings per common share: | ||||||||
| Net income for the period | $ | $ | ||||||
| Denominator for basic and diluted earnings per common share: | ||||||||
| Basic weighted average number of common shares outstanding | ||||||||
| Effect of outstanding stock options | ||||||||
| Diluted weighted average number of shares outstanding | ||||||||
| Basic earnings per common share | $ | $ | ||||||
| Diluted earnings per common share | $ | $ | ||||||
For the three months ended March 31, 2021, options to purchase
10. Revenue:
| (a) | Fiber Internet Services |
The Company generates Fiber Internet Services revenues primarily through the provisioning of fixed high-speed Internet access, Ting Internet, as well as billing solutions to Internet Service Providers (“ISPs”).
Fiber Internet services (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.
| (b) | Mobile Services |
The Company generates Mobile Services revenues through the provisioning of mobile services to wholesale and retail customers. Mobile services consist of mobile platform services provided to wholesale customers to whom we also provide other professional services. Mobile services also consist of retail services provided to Ting Mobile customers.
Mobile platform services agreements contain both MSE services and professional services. MSE services represent a single promise to provide continuous access (i.e. a stand-ready performance obligation) to the platform and software solutions. 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 is comprised of a series of distinct service periods. Consideration for these arrangements is variable each month depending on the number of subscribers hosted on the platform. The Company also provides professional services as a part of the mobile platform services agreements. These professional services can include implementation, training, consulting or software development/modification services. Revenues from arrangements to provide professional services are generally distinct from the other promises in the contract(s) and are recognized as the related services are performed. Consideration payable under the professional service arrangements is included with the variable consideration from the mobile platform services, which would represent variable consideration estimated using the most likely amount based on the range of hours expected to be incurred in providing the services. Where consideration for professional services is included in the consideration for mobile platform services, the Company estimates the standalone selling price (“SSP”) for professional services based on observable standalone sales, and applies the residual approach to estimate the SSP for mobile platform services. The total variable consideration is estimated at contract inception (considering any constraints that may apply and updating the estimates as new information becomes available) and the transaction price is allocated to the performance obligations based on the relative SSP basis and recognized over the period to which it relates.
Other professional services consist of professional service arrangements that are billed separately on a time-and-materials basis as well as revenues from the Transitional Services Agreement (“TSA”) with DISH Wireless L.L.C ("DISH"). For professional services billed separately on a time-and-materials basis, revenues are recognized based on the actual hours of services provided. Under the TSA, the Company will provide certain other services such as customer service, marketing and fulfillment services. DISH has the option to terminate services provided under the TSA throughout the term of the agreement, which is for five years effective August 1, 2020. Consideration payable under this arrangement is based on cost plus margin, and revenues are recognized as the services are provided to DISH each month under the ‘as-invoiced’ practical expedient.
Retail mobile services (Ting Mobile) wireless usage contracts grant customers access to standard talk, text and data mobile services. Some Ting Mobile contracts are billed based on the actual amount of monthly services utilized by each customer during their billing cycle. Voice minutes, text messages and megabytes of data are each billed separately based on a tiered pricing program. Some contracts are billed a flat rate for unlimited talk and text plus a fixed amount of data. All customers are billed on a postpaid basis. The Company recognizes revenue for Ting Mobile usage based on the actual amount of monthly services utilized by each customer.
| (c) | Domain Services |
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.
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Fiber Internet Services: | ||||||||
| Fiber Internet Services | $ | $ | ||||||
| Mobile Services: | ||||||||
| Retail mobile services | ||||||||
| Mobile platform services | ||||||||
| Other professional services | ||||||||
| Total Mobile | ||||||||
| Domain Services: | ||||||||
| Wholesale | ||||||||
| Domain Services | ||||||||
| Value Added Services | ||||||||
| Total Wholesale | ||||||||
| Retail | ||||||||
| Total Domain Services | ||||||||
| $ | $ | |||||||
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Fiber Internet Services: | ||||||||
| Fiber Internet Services | $ | $ | ||||||
| Mobile Services: | ||||||||
| Retail mobile services | ||||||||
| Mobile platform services | ||||||||
| Other professional services | ||||||||
| Total Mobile | ||||||||
| Domain Services: | ||||||||
| Wholesale | ||||||||
| Domain Services | ||||||||
| Value Added Services | ||||||||
| Total Wholesale | ||||||||
| Retail | ||||||||
| Total Domain Services | ||||||||
| Network Expenses: | ||||||||
| Network, other costs | ||||||||
| Network, depreciation and amortization costs | ||||||||
| Network, impairment | ||||||||
| Total Network Expenses | ||||||||
| $ | $ | |||||||
| March 31, 2021 | ||||
| Balance, beginning of period | $ | |||
| Deferred revenue | ||||
| Recognized revenue | ( | ) | ||
| Balance, end of period | $ | |||
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 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 to years, approximately
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 mobile platform services is deferred over a maximum of twelve month periods.
11. Costs to obtain and fulfill a Contract
Deferred costs of fulfillment
Deferred costs to fulfill contracts primarily consist of domain registration costs which have been paid to a domain registry, and are capitalized as deferred costs of fulfillment. These costs are deferred and amortized over the life of the domain which generally ranges from to years. The Company also defers certain technology design and data migration costs it incurs to fulfil its performance obligations contained in our MSE arrangements. For the three months ended March 31, 2021, the Company capitalized $
The breakdown of the movement in the prepaid domain name registry and ancillary services fees balance for the three months ended March 31, 2021 is as follows (Dollar amounts in thousands of U.S. dollars).
| March 31, 2021 | ||||
| Balance, beginning of period | $ | |||
| Deferral of costs | ||||
| Recognized costs | ( | ) | ||
| Balance, end of period | $ | |||
| For the three months ended | For the three months ended | |||||||
| March 31, 2021 | March 31, 2020 | |||||||
| Operating Lease Cost (leases with a total term greater than 12 months) | $ | $ | ||||||
| Short-term Lease Cost (leases with a total term of 12 months or less) | ||||||||
| Variable Lease Cost | ||||||||
| Total Lease Cost | $ | $ | ||||||
| For the three months ended | For the three months ended | |||||||
| Supplemental cashflow information: | March 31, 2021 | March 31, 2020 | ||||||
| Operating Lease - Operating Cash Flows (Fixed Payments) | $ | $ | ||||||
| Operating Lease - Operating Cash Flows (Liability Reduction) | $ | $ | ||||||
| New ROU Assets - Operating Leases | $ | $ | ||||||
| Supplemental balance sheet information related to leases: | March 31, 2021 | December 31, 2020 | ||||||
| Weighted Average Discount Rate | % | % | ||||||
| Weighted Average Remaining Lease Term | 8.01 yrs | 8.60 yrs | ||||||
| March 31, 2021 | ||||
| Remaining of 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total future lease payments | ||||
| Less imputed interest | ||||
| Total | $ | |||
As of March 31, 2021, we have not entered into lease agreements that have not yet commenced.
The Company has elected to use the single exchange rate approach when accounting for lease modifications. Under the single exchange rate approach, the entire right of use asset is revalued at the date of modification in the Company’s functional currency provided the re-measurement is not considered a separate contract or if the re-measurement is related to change the lease term or assessment of a lessee option to purchase the underlying asset being exercised.
Reportable operating segments:
We are organized and managed based on
During the first quarter of 2021, the Company completed a reorganization of its reporting structure into three operating and reportable segments: Fiber Internet Services, Mobile Services and Domain Services. Previously, we disclosed two operating and reportable segments: Network Access Services and Domain Services.
The change to our reportable operating segments was the result of a shift in our business and management structures that was initiated in 2020 and completed during the first quarter of 2021. The operations supporting what was previously known as our Network Access Services segment have become increasingly operationally distinct between our mobile services (which includes both retail mobile MNVO based services and wholesale MSE services) and our fiber Internet services which were also included in our Network Access Services segment. As a result, commencing in the first quarter of 2021, our Chief Executive Officer ("CEO"), who is also our chief operating decision maker, reviews the operating results of Mobile Services and Fiber Internet Services as two distinct segments in order to make key operating decisions as well as evaluate segment performance. Certain corporate costs are excluded from segment EBITDA results as they are centrally managed and not monitored by or reported to our CEO by segment, including Finance, Human Resources, Legal, Corporate IT, depreciation and amortization expense or impairments, interest expense, stock-based compensation and other income and expense items not monitored as part of our segment operations. Our comparative period financial results have also been reclassified to reflect the reorganized segment structure.
Our reportable operating segments and their principal activities consist of the following:
1. Fiber Internet Services - This segment derives revenue from the retail high speed Internet access to individuals and small businesses primarily through the Ting website, and other revenues including billing solutions to small ISPs. Revenues are generated in the United States.
2. Mobile Services – This segment derives revenue from MSE platform services and professional services to wholesale customers. This segment also derives revenue from the retail sale of mobile phones, retail telephony services to individuals and small businesses primarily through the Ting website. Revenues are generated in the United States.
3. Domain Services – 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.
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 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.
During the first quarter of 2021, the Company changed its key measures of segment performance to segment gross margin and adjusted EBITDA. Previously, we disclosed one key measure of segment performance, gross profit.
The change to our key measures of segment performance was also a result of shift in our business and management structures that were completed in the first quarter of 2021, which created more distinction between the operations supporting each reportable operating segment. As a result, commencing in the first quarter of 2021, our CEO, who is also our chief operating decision maker now regularly reviews segment gross margin and segment adjusted EBITDA to evaluate segment performance and make key operating decisions.
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 gain on sale of Ting Customer Assets, less 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 one-time in nature and not indicative of on-going performance, including acquisition and transition costs. Certain corporate costs are excluded from segment adjusted EBITDA results as they are centrally managed and not monitored by or reported to our CEO by segment, including Finance, Human Resources, Legal, Corporate IT, depreciation and amortization expense or impairments, interest expense, stock-based compensation and other income and expense items not monitored as part of our segment operations.
Our comparative period financial results have also been reclassified to reflect the current key measures of segment performance.
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"). Accordingly, adjusted EBITDA should be considered in addition to, but not as a substitute for net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. Total assets and total liabilities are centrally managed and are not reviewed at the segment level by the CEO. The Company follows the same accounting policies for the segments as those described in “Note 2 – Significant Accounting Policies”, and “Note 10 – Revenue”.
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):
| Fiber Internet Services | Mobile Services | Domain Services | Corporate | Consolidated Totals | ||||||||||||||||
| For the Three Months Ended March 31, 2021 | ||||||||||||||||||||
| Net Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Direct cost of revenues | ||||||||||||||||||||
| Segment Gross Margin | ||||||||||||||||||||
| Adjusted EBITDA | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||
| Fiber Internet Services | Mobile Services | Domain Services | Corporate | Consolidated Totals | ||||||||||||||||
| For the Three Months Ended March 31, 2020 | ||||||||||||||||||||
| Net Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Direct cost of revenues | ||||||||||||||||||||
| Segment Gross Margin | ||||||||||||||||||||
| Adjusted EBITDA | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||
| Reconciliation of Adjusted EBITDA to Income before Provision for Income Taxes | Three Months Ended March 31, | |||||||
| (In Thousands of US Dollars) | 2021 | 2020 | ||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||
| Adjusted EBITDA | $ | $ | ||||||
| Depreciation of property and equipment | ||||||||
| Impairment of property and equipment | ||||||||
| Amortization of intangible assets | ||||||||
| Interest expense, net | ||||||||
| Accretion of contingent consideration | ||||||||
| Stock-based compensation | ||||||||
| Unrealized loss (gain) on change in fair value of forward contracts | ||||||||
| Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities | ( | ) | ||||||
| Acquisition and other costs1 | ||||||||
| Income before provision for income taxes | $ | $ | ||||||
1Acquisition and other costs represents transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses, primarily related to our acquisition of Ascio in March 2019, Cedar in January 2020, 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.
| March 31, 2021 | December 31, 2020 | |||||||
| Canada | $ | $ | ||||||
| United States | ||||||||
| Europe | ||||||||
| $ | $ | |||||||
| March 31, 2021 | December 31, 2020 | |||||||
| Canada | $ | $ | ||||||
| United States | ||||||||
| $ | $ | |||||||
| March 31, 2021 | December 31, 2020 | |||||||
| Germany | $ | $ | ||||||
| $ | $ | |||||||
| 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, 2021 | $ | $ | $ | $ | ||||||||||||
| Twelve months ended December 31, 2020 | $ | $ | $ | $ | ||||||||||||
The following table summarizes stockholders' equity transactions for the