10-Q 1 tcx20230930_10q.htm FORM 10-Q tcx20230930_10q.htm
0000909494 TUCOWS INC /PA/ false --12-31 Q3 2023 595 693 0 0 250,000,000 250,000,000 10,879,140 10,879,140 10,817,110 10,817,110 211 566 204 197 1 12 0 0 0 0 0 2 15 7 3.75 50.9 4.50 4.25 4.00 3.75 3.00 5 1 0 1 1 1 10 80 12 1 10 9.36 7.74 - 677 - 677 - 17,167 10,739 23,594 12,176 4,207 10,913 1,528 4,472 9,381 4,337 27 5,040 902 10,385 3,436 7,879 47,551 29,120 - 31,785 7,969 31,829 4,884 12,897 18,662 8,555 128 15,546 5,017 34,266 7,153 30,890 0 0 0 0 0 4 7 1 5 19.78 19.78 21.61 28.37 30.70 30.74 40.04 48.00 51.82 59.98 60.01 68.41 70.13 79.51 80.61 82.07 3 1.27 1.27 1.74 1.74 4 10 6.00 6.00 September 15, 2023 Elliot Noss President and Chief Executive Officer True False False False December 31, 2025 The Company capitalizes stock-based compensation costs directly attributable to the development of qualifying assets. Qualifying assets include internally use software (IUS), assets under construction (AUC), equipment, or other long-lived assets that meet the capitalization criteria prescribed by ASC 718. During the three and nine months ended September 30, 2023 the Company capitalized $0.07 million and $0.3 million of stock-based compensation directly attributable to the development of certain IUS assets. 00009094942023-01-012023-09-30 xbrli:shares 00009094942023-10-31 iso4217:USD 00009094942023-09-30 00009094942022-12-31 iso4217:USDxbrli:shares 00009094942023-07-012023-09-30 00009094942022-07-012022-09-30 00009094942022-01-012022-09-30 00009094942023-06-30 00009094942022-06-30 00009094942021-12-31 00009094942022-09-30 0000909494us-gaap:InterestRateSwapMember2020-05-31 utr:M 0000909494us-gaap:ForwardContractsMembersrt:MinimumMember2023-01-012023-09-30 utr:Y 0000909494us-gaap:ForwardContractsMembersrt:MaximumMember2023-01-012023-09-30 0000909494us-gaap:ForwardContractsMember2023-09-30 0000909494us-gaap:ForwardContractsMemberus-gaap:DesignatedAsHedgingInstrumentMember2023-09-30 0000909494us-gaap:ForwardContractsMember2022-12-31 0000909494us-gaap:ForwardContractsMemberus-gaap:DesignatedAsHedgingInstrumentMember2022-12-31 0000909494us-gaap:InterestRateSwapMember2023-09-30 0000909494us-gaap:InterestRateSwapMember2022-12-31 0000909494us-gaap:InterestRateSwapMemberus-gaap:DesignatedAsHedgingInstrumentMember2022-12-31 0000909494tcx:ForeignExchangeForward1Member2023-09-30 xbrli:pure 0000909494tcx:ForeignExchangeForward2Member2023-09-30 0000909494tcx:DerivativeInstrumentsMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2023-09-30 0000909494tcx:DerivativeInstrumentsMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2022-12-31 0000909494tcx:DerivativeInstrumentsMemberus-gaap:InterestRateSwapMember2023-09-30 0000909494tcx:DerivativeInstrumentsMemberus-gaap:InterestRateSwapMember2022-12-31 0000909494tcx:DerivativeInstrumentsMember2023-09-30 0000909494tcx:DerivativeInstrumentsMember2022-12-31 0000909494us-gaap:ForeignExchangeForwardMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:OperatingExpenseMember2023-07-012023-09-30 0000909494us-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CostOfSalesMember2023-07-012023-09-30 0000909494us-gaap:ForeignExchangeForwardMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CostOfSalesMember2023-07-012023-09-30 0000909494us-gaap:ForeignExchangeForwardMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:OperatingExpenseMember2022-07-012022-09-30 0000909494us-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CostOfSalesMember2022-07-012022-09-30 0000909494us-gaap:ForeignExchangeForwardMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CostOfSalesMember2022-07-012022-09-30 0000909494us-gaap:InterestRateSwapMemberus-gaap:DesignatedAsHedgingInstrumentMembertcx:InterestExpenseNetMember2022-07-012022-09-30 0000909494us-gaap:InterestRateSwapMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMembertcx:InterestExpenseNetMember2022-07-012022-09-30 0000909494us-gaap:ForeignExchangeForwardMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:OperatingExpenseMember2023-01-012023-09-30 0000909494us-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:OperatingExpenseMember2023-01-012023-09-30 0000909494us-gaap:ForeignExchangeForwardMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CostOfSalesMember2023-01-012023-09-30 0000909494us-gaap:ForeignExchangeForwardMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:OperatingExpenseMember2022-01-012022-09-30 0000909494us-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CostOfSalesMember2022-01-012022-09-30 0000909494us-gaap:ForeignExchangeForwardMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CostOfSalesMember2022-01-012022-09-30 0000909494us-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMembertcx:InterestExpenseNetMember2022-01-012022-09-30 0000909494us-gaap:ForeignExchangeForwardMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMembertcx:InterestExpenseNetMember2022-01-012022-09-30 0000909494tcx:DomainServicesOperatingSegmentMember2023-09-30 0000909494tcx:NetworkAccessServicesMember2023-09-30 0000909494srt:MinimumMember2023-09-30 0000909494srt:MaximumMember2023-09-30 0000909494tcx:CustomerAssetsAndDomainNamesMember2023-07-012023-09-30 0000909494tcx:CustomerAssetsAndDomainNamesMember2023-01-012023-09-30 0000909494tcx:CustomerAssetsAndDomainNamesMember2023-09-30 0000909494tcx:SurnameDomainNamesMember2023-06-30 0000909494tcx:DirectNavigationDomainNamesMember2023-06-30 0000909494tcx:BrandMember2023-06-30 0000909494us-gaap:CustomerRelationshipsMember2023-06-30 0000909494us-gaap:TechnologyBasedIntangibleAssetsMember2023-06-30 0000909494tcx:NetworkRightsMember2023-06-30 0000909494tcx:SurnameDomainNamesMember2023-07-012023-09-30 0000909494tcx:DirectNavigationDomainNamesMember2023-07-012023-09-30 0000909494tcx:BrandMember2023-07-012023-09-30 0000909494us-gaap:CustomerRelationshipsMember2023-07-012023-09-30 0000909494us-gaap:TechnologyBasedIntangibleAssetsMember2023-07-012023-09-30 0000909494tcx:NetworkRightsMember2023-07-012023-09-30 0000909494tcx:SurnameDomainNamesMember2023-09-30 0000909494tcx:DirectNavigationDomainNamesMember2023-09-30 0000909494tcx:BrandMember2023-09-30 0000909494us-gaap:CustomerRelationshipsMember2023-09-30 0000909494us-gaap:TechnologyBasedIntangibleAssetsMember2023-09-30 0000909494tcx:NetworkRightsMember2023-09-30 0000909494tcx:SurnameDomainNamesMember2022-12-31 0000909494tcx:DirectNavigationDomainNamesMember2022-12-31 0000909494tcx:BrandMember2022-12-31 0000909494us-gaap:CustomerRelationshipsMember2022-12-31 0000909494us-gaap:TechnologyBasedIntangibleAssetsMember2022-12-31 0000909494tcx:NetworkRightsMember2022-12-31 0000909494tcx:SurnameDomainNamesMember2023-01-012023-09-30 0000909494tcx:DirectNavigationDomainNamesMember2023-01-012023-09-30 0000909494tcx:BrandMember2023-01-012023-09-30 0000909494us-gaap:CustomerRelationshipsMember2023-01-012023-09-30 0000909494us-gaap:TechnologyBasedIntangibleAssetsMember2023-01-012023-09-30 0000909494tcx:NetworkRightsMember2023-01-012023-09-30 0000909494tcx:GuaranteedCreditFacilityMembertcx:RoyalBankBankOfMontrealBankOfNovaScotiaHsbcAndCibcMember2019-06-14 0000909494tcx:GuaranteedCreditFacilityMembertcx:RoyalBankBankOfMontrealBankOfNovaScotiaHsbcAndCibcMember2023-01-012023-09-30 0000909494tcx:The2023CreditFacilityMembertcx:BankOfMontrealMember2023-09-22 0000909494tcx:The2023CreditFacilityMembertcx:BankOfMontrealMembersrt:MaximumMember2023-09-22 0000909494tcx:The2023CreditFacilityMembertcx:BankOfMontrealMember2023-09-222023-09-22 0000909494tcx:GuaranteedCreditFacilityMembertcx:RoyalBankBankOfMontrealBankOfNovaScotiaHsbcAndCibcMember2023-09-30 0000909494tcx:The2023CreditFacilityMembertcx:BankOfMontrealMember2023-09-30 0000909494tcx:GuaranteedCreditFacilityMembertcx:InterestExpenseNetMembertcx:RoyalBankBankOfMontrealBankOfNovaScotiaHsbcAndCibcMember2023-01-012023-09-30 0000909494tcx:The2023CreditFacilityMembertcx:BankOfMontrealMember2023-07-012023-09-30 0000909494tcx:The2023CreditFacilityMembertcx:BankOfMontrealMemberus-gaap:SubsequentEventMember2023-10-032023-10-03 0000909494tcx:The2023CreditFacilityMembertcx:BankOfMontrealMembersrt:ScenarioForecastMember2023-12-31 0000909494tcx:The2023CreditFacilityMembertcx:BankOfMontrealMembersrt:ScenarioForecastMember2024-03-31 0000909494tcx:The2023CreditFacilityMembertcx:BankOfMontrealMembersrt:ScenarioForecastMember2024-06-30 0000909494tcx:BankOfMontrealAndRoyalBankOfCanadaMembertcx:DebtToEbitdaIsLessThan200Memberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-01-012023-09-30 0000909494tcx:BankOfMontrealAndRoyalBankOfCanadaMembertcx:DebtToEbitdaIsGreaterThanOrEqualTo200AndLessThan275Memberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-01-012023-09-30 0000909494tcx:BankOfMontrealAndRoyalBankOfCanadaMembertcx:DebtToEbitdaIsGreaterThanOrEqualTo275AndLessThan350Memberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-01-012023-09-30 0000909494tcx:BankOfMontrealAndRoyalBankOfCanadaMembertcx:DebtToEbitdaGreaterThanOrEqualTo350AndLessThan400Memberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-01-012023-09-30 0000909494tcx:BankOfMontrealAndRoyalBankOfCanadaMembertcx:DebtToEbitdaIsGreaterThanOrEqualTo400Memberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-01-012023-09-30 0000909494tcx:BankOfMontrealAndRoyalBankOfCanadaMembertcx:DebtToEbitdaIsLessThan200Memberus-gaap:BaseRateMember2023-01-012023-09-30 0000909494tcx:BankOfMontrealAndRoyalBankOfCanadaMembertcx:DebtToEbitdaIsGreaterThanOrEqualTo200AndLessThan275Memberus-gaap:BaseRateMember2023-01-012023-09-30 0000909494tcx:BankOfMontrealAndRoyalBankOfCanadaMembertcx:DebtToEbitdaIsGreaterThanOrEqualTo275AndLessThan350Memberus-gaap:BaseRateMember2023-01-012023-09-30 0000909494tcx:BankOfMontrealAndRoyalBankOfCanadaMembertcx:DebtToEbitdaGreaterThanOrEqualTo350AndLessThan400Memberus-gaap:BaseRateMember2023-01-012023-09-30 0000909494tcx:BankOfMontrealAndRoyalBankOfCanadaMembertcx:DebtToEbitdaIsGreaterThanOrEqualTo400Memberus-gaap:BaseRateMember2023-01-012023-09-30 0000909494tcx:DebtToEbitdaIsLessThan200Member2023-01-012023-09-30 0000909494tcx:DebtToEbitdaIsGreaterThanOrEqualTo200AndLessThan275Member2023-01-012023-09-30 0000909494tcx:DebtToEbitdaIsGreaterThanOrEqualTo275AndLessThan350Member2023-01-012023-09-30 0000909494tcx:DebtToEbitdaGreaterThanOrEqualTo350AndLessThan400Member2023-01-012023-09-30 0000909494tcx:DebtToEbitdaIsGreaterThanOrEqualTo400Member2023-01-012023-09-30 0000909494tcx:RevolverFacilityMember2023-09-30 0000909494tcx:RevolverFacilityMember2022-12-31 0000909494tcx:TingIssuerLlcMembertcx:SecuredFiberRevenueNotesSeries20231ClassA2Member2023-05-04 0000909494tcx:TingIssuerLlcMembertcx:SecuredFiberRevenueNotesSeries20231ClassBMember2023-05-04 0000909494tcx:TingIssuerLlcMembertcx:SecuredFiberRevenueNotesSeries20231ClassCMember2023-05-04 0000909494tcx:TingIssuerLlcMember2023-05-042023-05-04 0000909494tcx:TingIssuerLlcMember2023-05-04 0000909494tcx:TingIssuerLlcMember2023-07-012023-09-30 0000909494tcx:TingIssuerLlcMember2023-01-012023-09-30 0000909494tcx:TingIssuerLlcMembertcx:SecuredFiberRevenueNotesSeries20231ClassA2Member2023-05-042023-05-04 0000909494tcx:TingIssuerLlcMembertcx:SecuredFiberRevenueNotesSeries20231ClassBMember2023-05-042023-05-04 0000909494tcx:TingIssuerLlcMembertcx:SecuredFiberRevenueNotesSeries20231ClassCMember2023-05-042023-05-04 0000909494tcx:TingIssuerLlcMembertcx:The2023TermNotesMember2023-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:FiberInternetServicesMember2023-07-012023-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:FiberInternetServicesMember2022-07-012022-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:FiberInternetServicesMember2023-01-012023-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:FiberInternetServicesMember2022-01-012022-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:PlatformServicesMembertcx:MobilePlatformServicesMember2023-07-012023-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:PlatformServicesMembertcx:MobilePlatformServicesMember2022-07-012022-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:PlatformServicesMembertcx:MobilePlatformServicesMember2023-01-012023-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:PlatformServicesMembertcx:MobilePlatformServicesMember2022-01-012022-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:OtherServicesMembertcx:MobilePlatformServicesMember2023-07-012023-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:OtherServicesMembertcx:MobilePlatformServicesMember2022-07-012022-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:OtherServicesMembertcx:MobilePlatformServicesMember2023-01-012023-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:OtherServicesMembertcx:MobilePlatformServicesMember2022-01-012022-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:MobilePlatformServicesMember2023-07-012023-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:MobilePlatformServicesMember2022-07-012022-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:MobilePlatformServicesMember2023-01-012023-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:MobilePlatformServicesMember2022-01-012022-09-30 0000909494tcx:DomainServicesMembertcx:DomainNameServicesMembertcx:WholesaleMember2023-07-012023-09-30 0000909494tcx:DomainServicesMembertcx:DomainNameServicesMembertcx:WholesaleMember2022-07-012022-09-30 0000909494tcx:DomainServicesMembertcx:DomainNameServicesMembertcx:WholesaleMember2023-01-012023-09-30 0000909494tcx:DomainServicesMembertcx:DomainNameServicesMembertcx:WholesaleMember2022-01-012022-09-30 0000909494tcx:ValueAddedServicesMembertcx:DomainNameServicesMembertcx:WholesaleMember2023-07-012023-09-30 0000909494tcx:ValueAddedServicesMembertcx:DomainNameServicesMembertcx:WholesaleMember2022-07-012022-09-30 0000909494tcx:ValueAddedServicesMembertcx:DomainNameServicesMembertcx:WholesaleMember2023-01-012023-09-30 0000909494tcx:ValueAddedServicesMembertcx:DomainNameServicesMembertcx:WholesaleMember2022-01-012022-09-30 0000909494tcx:DomainNameServicesMembertcx:WholesaleMember2023-07-012023-09-30 0000909494tcx:DomainNameServicesMembertcx:WholesaleMember2022-07-012022-09-30 0000909494tcx:DomainNameServicesMembertcx:WholesaleMember2023-01-012023-09-30 0000909494tcx:DomainNameServicesMembertcx:WholesaleMember2022-01-012022-09-30 0000909494us-gaap:OperatingSegmentsMemberus-gaap:RetailMembertcx:DomainNameServicesMember2023-07-012023-09-30 0000909494us-gaap:OperatingSegmentsMemberus-gaap:RetailMembertcx:DomainNameServicesMember2022-07-012022-09-30 0000909494us-gaap:OperatingSegmentsMemberus-gaap:RetailMembertcx:DomainNameServicesMember2023-01-012023-09-30 0000909494us-gaap:OperatingSegmentsMemberus-gaap:RetailMembertcx:DomainNameServicesMember2022-01-012022-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:DomainNameServicesMember2023-07-012023-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:DomainNameServicesMember2022-07-012022-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:DomainNameServicesMember2023-01-012023-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:DomainNameServicesMember2022-01-012022-09-30 0000909494srt:ConsolidationEliminationsMember2023-07-012023-09-30 0000909494srt:ConsolidationEliminationsMember2022-07-012022-09-30 0000909494srt:ConsolidationEliminationsMember2023-01-012023-09-30 0000909494srt:ConsolidationEliminationsMember2022-01-012022-09-30 0000909494us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2023-07-012023-09-30 0000909494us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2023-01-012023-09-30 0000909494us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMembertcx:OneCustomerMember2023-07-012023-09-30 0000909494us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMembertcx:OneCustomerMember2023-01-012023-09-30 0000909494us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2022-07-012022-09-30 0000909494us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2022-01-012022-09-30 0000909494us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2023-01-012023-09-30 0000909494us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMembertcx:OneCustomerMember2023-01-012023-09-30 0000909494us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2022-01-012022-12-31 0000909494us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMembertcx:OneCustomerMember2022-01-012022-12-31 0000909494tcx:FiberInternetServicesMember2023-07-012023-09-30 0000909494tcx:FiberInternetServicesMember2022-07-012022-09-30 0000909494tcx:FiberInternetServicesMember2023-01-012023-09-30 0000909494tcx:FiberInternetServicesMember2022-01-012022-09-30 0000909494tcx:PlatformServicesMembertcx:MobileServicesMember2023-07-012023-09-30 0000909494tcx:PlatformServicesMembertcx:MobileServicesMember2022-07-012022-09-30 0000909494tcx:PlatformServicesMembertcx:MobileServicesMember2023-01-012023-09-30 0000909494tcx:PlatformServicesMembertcx:MobileServicesMember2022-01-012022-09-30 0000909494tcx:OtherServicesMembertcx:MobileServicesMember2023-07-012023-09-30 0000909494tcx:OtherServicesMembertcx:MobileServicesMember2022-07-012022-09-30 0000909494tcx:OtherServicesMembertcx:MobileServicesMember2023-01-012023-09-30 0000909494tcx:OtherServicesMembertcx:MobileServicesMember2022-01-012022-09-30 0000909494tcx:MobileServicesMember2023-07-012023-09-30 0000909494tcx:MobileServicesMember2022-07-012022-09-30 0000909494tcx:MobileServicesMember2023-01-012023-09-30 0000909494tcx:MobileServicesMember2022-01-012022-09-30 0000909494tcx:DomainNameServicesMembertcx:RetailServicesMember2023-07-012023-09-30 0000909494tcx:DomainNameServicesMembertcx:RetailServicesMember2022-07-012022-09-30 0000909494tcx:DomainNameServicesMembertcx:RetailServicesMember2023-01-012023-09-30 0000909494tcx:DomainNameServicesMembertcx:RetailServicesMember2022-01-012022-09-30 0000909494tcx:DomainNameServicesMember2023-07-012023-09-30 0000909494tcx:DomainNameServicesMember2022-07-012022-09-30 0000909494tcx:DomainNameServicesMember2023-01-012023-09-30 0000909494tcx:DomainNameServicesMember2022-01-012022-09-30 0000909494us-gaap:CorporateNonSegmentMember2023-07-012023-09-30 0000909494us-gaap:CorporateNonSegmentMember2022-07-012022-09-30 0000909494us-gaap:CorporateNonSegmentMember2023-01-012023-09-30 0000909494us-gaap:CorporateNonSegmentMember2022-01-012022-09-30 0000909494tcx:NetworkExpensesMember2023-07-012023-09-30 0000909494tcx:NetworkExpensesMember2022-07-012022-09-30 0000909494tcx:NetworkExpensesMember2023-01-012023-09-30 0000909494tcx:NetworkExpensesMember2022-01-012022-09-30 0000909494tcx:ActiveDomainNameContractsMembersrt:MinimumMember2023-09-30 0000909494tcx:ActiveDomainNameContractsMembersrt:MaximumMember2023-09-30 0000909494tcx:ActiveDomainNameContractsMember2023-10-012023-09-30 0000909494tcx:DeferredCostsOfAcquisitionMembersrt:MinimumMember2023-09-30 0000909494tcx:DeferredCostsOfAcquisitionMembersrt:MaximumMember2023-09-30 0000909494tcx:DomainRegistrationCostsMember2023-01-012023-09-30 0000909494tcx:DeferredCostsOfAcquisitionMember2022-12-31 0000909494tcx:DeferredCostsOfAcquisitionMember2023-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:MobileServicesMember2022-07-012022-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:MobileServicesMember2023-01-012023-09-30 0000909494us-gaap:OperatingSegmentsMembertcx:MobileServicesMember2022-01-012022-09-30 0000909494tcx:TingMember2023-07-012023-09-30 0000909494tcx:WaveloMember2023-07-012023-09-30 0000909494tcx:TucowsDomainsMember2023-07-012023-09-30 0000909494us-gaap:CorporateMember2023-07-012023-09-30 0000909494tcx:TingMember2022-07-012022-09-30 0000909494tcx:WaveloMember2022-07-012022-09-30 0000909494tcx:TucowsDomainsMember2022-07-012022-09-30 0000909494us-gaap:CorporateMember2022-07-012022-09-30 0000909494tcx:TingMember2023-01-012023-09-30 0000909494tcx:WaveloMember2023-01-012023-09-30 0000909494tcx:TucowsDomainsMember2023-01-012023-09-30 0000909494us-gaap:CorporateMember2023-01-012023-09-30 0000909494tcx:TingMember2022-01-012022-09-30 0000909494tcx:WaveloMember2022-01-012022-09-30 0000909494tcx:TucowsDomainsMember2022-01-012022-09-30 0000909494us-gaap:CorporateMember2022-01-012022-09-30 0000909494country:CA2023-09-30 0000909494country:CA2022-12-31 0000909494country:US2023-09-30 0000909494country:US2022-12-31 0000909494srt:EuropeMember2023-09-30 0000909494srt:EuropeMember2022-12-31 00009094942022-01-012022-12-31 0000909494us-gaap:CommonStockMember2023-06-30 0000909494us-gaap:AdditionalPaidInCapitalMember2023-06-30 0000909494us-gaap:RetainedEarningsMember2023-06-30 0000909494us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-06-30 0000909494us-gaap:CommonStockMember2023-07-012023-09-30 0000909494us-gaap:AdditionalPaidInCapitalMember2023-07-012023-09-30 0000909494us-gaap:RetainedEarningsMember2023-07-012023-09-30 0000909494us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-07-012023-09-30 0000909494us-gaap:CommonStockMember2023-09-30 0000909494us-gaap:AdditionalPaidInCapitalMember2023-09-30 0000909494us-gaap:RetainedEarningsMember2023-09-30 0000909494us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-09-30 0000909494us-gaap:CommonStockMember2022-12-31 0000909494us-gaap:AdditionalPaidInCapitalMember2022-12-31 0000909494us-gaap:RetainedEarningsMember2022-12-31 0000909494us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-31 0000909494us-gaap:CommonStockMember2023-01-012023-09-30 0000909494us-gaap:AdditionalPaidInCapitalMember2023-01-012023-09-30 0000909494us-gaap:RetainedEarningsMember2023-01-012023-09-30 0000909494us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-09-30 0000909494tcx:CapitalizedInternalUseSoftwareMember2023-07-012023-09-30 0000909494tcx:CapitalizedInternalUseSoftwareMember2023-01-012023-09-30 0000909494tcx:StockBuybackProgram2023Member2023-02-09 0000909494tcx:StockBuybackProgram2023Member2023-02-10 0000909494tcx:StockBuybackProgram2023Member2023-07-012023-09-30 0000909494tcx:StockBuybackProgram2022Member2022-02-10 0000909494tcx:StockBuybackProgram2022Member2022-04-012022-06-30 0000909494tcx:StockBuybackProgram2023Member2023-01-012023-09-30 0000909494tcx:StockBuybackProgram2021Member2021-02-09 0000909494tcx:StockBuybackProgram2021Member2021-04-012022-09-30 0000909494tcx:EquityCompensationPlan2006Member2006-11-22 0000909494tcx:EquityCompensationPlan2006Member2010-10-082010-10-08 0000909494tcx:EquityCompensationPlan2006Member2010-10-08 0000909494tcx:EquityCompensationPlan2006Member2015-09-012015-09-30 0000909494tcx:EquityCompensationPlan2006Member2015-09-30 0000909494tcx:EquityCompensationPlan2006Member2020-11-012020-11-30 0000909494tcx:EquityCompensationPlan2006Member2020-11-30 0000909494us-gaap:EmployeeStockOptionMembertcx:EquityCompensationPlan2006Member2021-01-012021-12-31 0000909494tcx:AutomaticFormulaGrantsOfNonqualifiedStockOptionsMembertcx:EquityCompensationPlan2006Member2021-01-012021-12-31 0000909494tcx:EquityCompensationPlan2006Member2023-06-30 0000909494tcx:EquityCompensationPlan2006Member2022-06-30 0000909494tcx:EquityCompensationPlan2006Member2023-07-012023-09-30 0000909494tcx:EquityCompensationPlan2006Member2022-07-012022-09-30 0000909494tcx:EquityCompensationPlan2006Member2023-09-30 0000909494tcx:EquityCompensationPlan2006Member2022-09-30 0000909494tcx:EquityCompensationPlan2006Member2022-12-31 0000909494tcx:EquityCompensationPlan2006Member2021-12-31 0000909494tcx:EquityCompensationPlan2006Member2023-01-012023-09-30 0000909494tcx:EquityCompensationPlan2006Member2022-01-012022-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange01Member2023-01-012023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange01Member2023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange02Member2023-01-012023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange02Member2023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange03Member2023-01-012023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange03Member2023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange04Member2023-01-012023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange04Member2023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange05Member2023-01-012023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange05Member2023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange06Member2023-01-012023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange06Member2023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange07Member2023-01-012023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange07Member2023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange08Member2023-01-012023-09-30 0000909494tcx:EquityCompensationPlan2006Membertcx:ExercisePriceRange08Member2023-09-30 0000909494tcx:AutomaticFormulaGrantsOfNonqualifiedStockOptionsMembertcx:EquityCompensationPlan2006Member2023-09-30 0000909494tcx:AutomaticFormulaGrantsOfNonqualifiedStockOptionsMembertcx:EquityCompensationPlan2006Member2023-01-012023-09-30 0000909494tcx:The2022WaveloEquityCompensationPlanMember2022-11-09 0000909494tcx:The2022WaveloEquityCompensationPlanMember2022-11-092022-11-09 0000909494tcx:The2022WaveloEquityCompensationPlanMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2022-11-092022-11-09 0000909494tcx:The2022WaveloEquityCompensationPlanMember2023-06-30 0000909494tcx:The2022WaveloEquityCompensationPlanMember2023-07-012023-09-30 0000909494tcx:The2022WaveloEquityCompensationPlanMember2023-09-30 0000909494tcx:The2022WaveloEquityCompensationPlanMember2022-12-31 0000909494tcx:The2022WaveloEquityCompensationPlanMember2021-12-31 0000909494tcx:The2022WaveloEquityCompensationPlanMember2023-01-012023-09-30 0000909494tcx:TotalSharesMembertcx:The2022WaveloEquityCompensationPlanMember2023-09-30 0000909494tcx:The2022WaveloEquityCompensationPlanMembertcx:ExercisePriceRange01Member2023-01-012023-09-30 0000909494tcx:The2022WaveloEquityCompensationPlanMembertcx:ExercisePriceRange01Member2023-09-30 0000909494tcx:The2022WaveloEquityCompensationPlanMembertcx:ExercisePriceRange02Member2023-01-012023-09-30 0000909494tcx:The2022WaveloEquityCompensationPlanMembertcx:ExercisePriceRange02Member2023-09-30 0000909494us-gaap:EmployeeStockOptionMembertcx:The2022WaveloEquityCompensationPlanMember2023-09-30 0000909494us-gaap:EmployeeStockOptionMembertcx:The2022WaveloEquityCompensationPlanMember2023-01-012023-09-30 0000909494tcx:The2022TingEquityCompensationPlanMember2023-01-16 0000909494us-gaap:EmployeeStockOptionMembertcx:The2022TingEquityCompensationPlanMember2023-01-162023-01-16 0000909494us-gaap:EmployeeStockOptionMembertcx:The2022TingEquityCompensationPlanMembersrt:MaximumMember2023-01-162023-01-16 0000909494tcx:The2022TingEquityCompensationPlanMember2023-06-30 0000909494tcx:The2022TingEquityCompensationPlanMember2023-07-012023-09-30 0000909494tcx:The2022TingEquityCompensationPlanMember2023-09-30 0000909494tcx:The2022TingEquityCompensationPlanMember2022-12-31 0000909494tcx:The2022TingEquityCompensationPlanMember2023-01-012023-09-30 0000909494tcx:The2022TingEquityCompensationPlanMembertcx:ExercisePriceRange01Member2023-01-012023-09-30 0000909494tcx:The2022TingEquityCompensationPlanMembertcx:ExercisePriceRange01Member2023-09-30 0000909494us-gaap:EmployeeStockOptionMembertcx:The2022TingEquityCompensationPlanMember2023-09-30 0000909494us-gaap:EmployeeStockOptionMembertcx:The2022TingEquityCompensationPlanMember2023-01-012023-09-30 0000909494us-gaap:EmployeeStockOptionMember2023-07-012023-09-30 0000909494us-gaap:EmployeeStockOptionMember2023-01-012023-09-30 0000909494us-gaap:EmployeeStockOptionMember2022-07-012022-09-30 0000909494us-gaap:EmployeeStockOptionMember2022-01-012022-09-30 0000909494tcx:The2022WaveloEquityCompensationPlanMember2022-07-012022-09-30 0000909494tcx:The2022WaveloEquityCompensationPlanMember2022-01-012022-09-30 0000909494tcx:The2022TingEquityCompensationPlanMember2022-07-012022-09-30 0000909494tcx:The2022TingEquityCompensationPlanMember2022-01-012022-09-30 0000909494tcx:CapitalizedInternalUseSoftwareMember2022-07-012022-09-30 0000909494tcx:CapitalizedInternalUseSoftwareMember2022-01-012022-09-30 0000909494tcx:TotalStockBasedCompensationExpenseMember2023-07-012023-09-30 0000909494tcx:TotalStockBasedCompensationExpenseMember2022-07-012022-09-30 0000909494tcx:TotalStockBasedCompensationExpenseMember2023-01-012023-09-30 0000909494tcx:TotalStockBasedCompensationExpenseMember2022-01-012022-09-30 0000909494us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-09-30 0000909494us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-09-30 0000909494us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-09-30 0000909494us-gaap:FairValueMeasurementsRecurringMember2023-09-30 0000909494us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-31 0000909494us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-31 0000909494us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-31 0000909494us-gaap:FairValueMeasurementsRecurringMember2022-12-31 0000909494tcx:PurchaseAgreementWithDISHWirelessLLCMember2020-08-012020-08-01 0000909494tcx:PurchaseAgreementWithDISHWirelessLLCMember2023-07-012023-09-30 0000909494tcx:PurchaseAgreementWithDISHWirelessLLCMember2022-07-012022-09-30 0000909494tcx:PurchaseAgreementWithDISHWirelessLLCMember2023-01-012023-09-30 0000909494tcx:PurchaseAgreementWithDISHWirelessLLCMember2022-01-012022-09-30 0000909494tcx:SeriesAPreferredUnitsMember2022-08-08 0000909494tcx:SeriesAPreferredUnitsMember2022-08-082022-08-08 0000909494tcx:SeriesAPreferredUnitsMembersrt:MinimumMember2022-08-082022-08-08 0000909494tcx:SeriesAPreferredUnitsMembersrt:MaximumMember2022-08-082022-08-08 0000909494tcx:SeriesAPreferredUnitsMember2023-07-012023-09-30 0000909494tcx:SeriesAPreferredUnitsMember2023-01-012023-09-30 0000909494tcx:SeriesAPreferredUnitsMember2023-01-30 0000909494tcx:SeriesAPreferredUnitsMember2023-04-21 0000909494tcx:SeriesAPreferredUnitsMember2023-05-042023-05-04 0000909494tcx:SeriesAPreferredUnitsMember2023-05-04 0000909494tcx:SeriesAPreferredUnitsMember2023-09-30 0000909494us-gaap:PreferredStockMember2022-12-31 0000909494us-gaap:PreferredStockMember2021-12-31 0000909494us-gaap:PreferredStockMember2023-01-012023-09-30 0000909494us-gaap:PreferredStockMember2022-01-012022-12-31 0000909494us-gaap:PreferredStockMember2023-09-30 thunderdome:item
 
 

 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

 

OR

 

 

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 1-32600

 

TUCOWS INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Pennsylvania

23-2707366

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

 

96 Mowat Avenue,

Toronto, Ontario M6K 3M1, Canada

(Address of Principal Executive Offices) (Zip Code)

 

(416) 535-0123

(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

Common Stock

 

TCX

 

NASDAQ

 

 

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:  Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

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 ☐

Accelerated filer ☒

  

  

Non-accelerated filer ☐

Smaller reporting company 

  

  

 

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  No ☒

 

As of October 31, 2023, there were 10,895,180 outstanding shares of common stock, no par value, of the registrant.

 

 

 

TUCOWS INC.

Form 10-Q Quarterly Report

INDEX

 

PART I

FINANCIAL INFORMATION

 

 

 

Item 1.

Consolidated Financial Statements

3

  

  

  

  

Consolidated Balance Sheets (unaudited) as of September 30, 2023 and December 31, 2022

3

  

  

  

  

Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2023 and 2022

4

  

  

  

  

Consolidated Statements of Cash Flows (unaudited) for the three and nine months ended September 30, 2023 and 2022

5

  

  

  

  

Notes to Consolidated Financial Statements (unaudited)

6

  

  

  

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

31

  

  

  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

52

  

  

  

Item 4.

Controls and Procedures

53

  

  

  

PART II

OTHER INFORMATION

  

  

  

Item 1.

Legal Proceedings

54

  

  

  

Item 1A.

Risk Factors

54

  

  

  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds 

  54

 

 

 

Item 3.

Defaults Upon Senior Securities

54

  

  

  

Item 4.

Mine Safety Disclosures

54

 

 

 

Item 5.

Other Information

54

  

  

  

Item 6.

Exhibits

55

  

  

  

Signatures

56


TRADEMARKS, TRADE NAMES AND SERVICE MARKS

 

Tucows®, EPAG®, Hover®, OpenSRS®, Platypus®, Ting®, eNom®, Bulkregister®, Ascio®, Cedar®, Simply Bits®, Wavelo® 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.

 

 

 

PART I.    FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Tucows Inc.

Consolidated Balance Sheets

 

(Dollar amounts in thousands of U.S. dollars)

(unaudited)

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 
         

Assets

        
         

Current assets:

        

Cash and cash equivalents

 $110,736  $23,496 

Restricted cash (note 7)

  3,138   - 

Accounts receivable, net of allowance for doubtful accounts of $595 as of September 30, 2023 and $693 as of December 31, 2022

  24,189   18,404 

Contract asset, net current portion (note 10)

  3,310   5,159 

Inventory

  7,788   7,284 

Prepaid expenses and deposits

  19,399   17,005 

Derivative instrument asset, current portion (note 4)

  186   1,903 

Deferred costs of fulfillment, current portion (note 11)

  97,072   94,198 

Income taxes recoverable

  456   2,471 

Total current assets

  266,274   169,920 
         

Contract asset, net long-term portion (note 10)

  -   2,328 

Deferred costs of fulfillment, long-term portion (note 11)

  15,566   16,476 

Investments

  2,012   2,012 

Secured notes reserve funds (note 7)

  8,543   - 

Deferred tax asset

  3   - 

Property and equipment

  330,874   281,495 

Right of use lease asset

  25,669   20,489 

Contract costs

  2,439   1,827 

Intangible assets, net (note 5)

  32,101   39,790 

Goodwill (note 5)

  130,410   130,410 

Total assets

 $813,891  $664,747 
         
         

Liabilities and Stockholders' Equity

        
         

Current liabilities:

        

Accounts payable

 $11,680  $17,171 

Accrued liabilities

  23,096   22,653 

Customer deposits

  18,740   15,783 

Derivative instrument liability, current portion (note 4)

  -   389 

Operating lease liability, current portion (note 12)

  5,284   4,642 

Deferred revenue, current portion (note 10)

  128,101   122,894 

Accreditation fees payable, current portion

  637   809 

Income taxes payable

  837   2,248 

Other current liabilities

  -   1,600 

Total current liabilities

  188,375   188,189 
         

Deferred revenue, long-term portion (note 10)

  21,653   22,237 

Accreditation fees payable, long-term portion

  -   142 

Operating lease liability, long-term portion (note 12)

  16,659   12,438 

Syndicated revolver (note 6)

  221,911   238,930 

Notes payable (note 7)

  222,056   - 

Redeemable preferred shares (note 18)

  107,069   90,434 

Deferred tax liability

  6,123   15,720 

Stockholders' equity (note 14)

        

Common stock - no par value, 250,000,000 shares authorized; 10,879,140 shares issued and outstanding as of September 30, 2023 and 10,817,110 shares issued and outstanding as of December 31, 2022

  33,592   31,868 

Additional paid-in capital

  13,237   8,106 

Retained earnings

  (16,924)  55,899 

Accumulated other comprehensive income (note 4)

  140   784 

Total stockholders' equity

  30,045   96,657 

Total liabilities and stockholders' equity

 $813,891  $664,747 
         

Contingencies (note 19)

          

 

See accompanying notes to consolidated financial statements 

 

 

 

Tucows Inc.

Consolidated Statements of Operations and Comprehensive Loss 

 

(Dollar amounts in thousands of U.S. dollars, except per share amounts) 

(unaudited)

 

  

For the Three Months Ended September 30,

  

For the Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 
                 
                 

Net revenues (note 10)

 $86,971  $78,050  $252,379  $242,233 
                 

Cost of revenues (note 10)

                

Direct cost of revenues

  50,717   48,302   150,750   147,023 

Network, other costs

  7,322   4,244   20,638   13,188 

Network, depreciation of property and equipment

  9,138   7,136   26,331   19,620 

Network, amortization of intangible assets (note 5)

  378   378   1,135   1,134 

Network, impairment of property and equipment

  2,663   3   4,679   30 

Total cost of revenues

  70,218   60,063   203,533   180,995 
                 

Gross profit

  16,753   17,987   48,846   61,238 
                 

Expenses:

                

Sales and marketing

  17,295   13,894   49,052   39,384 

Technical operations and development

  4,818   2,983   14,214   10,212 

General and administrative

  9,399   7,897   25,674   22,006 

Depreciation of property and equipment

  137   149   439   443 

Loss (gain) on disposition of property and equipment

  -   (19)  -   461 

Amortization of intangible assets (note 5)

  2,242   2,464   6,966   7,394 

Loss (gain) on currency forward contracts (note 4)

  29   -   52   - 

Total expenses

  33,920   27,368   96,397   79,900 
                 

Loss from operations

  (17,167)  (9,381)  (47,551)  (18,662)
                 

Other income (expenses):

                

Interest expense, net

  (10,739)  (4,337)  (29,120)  (8,555)

Loss on debt extinguishment (note 18)

  -   -   (14,680)  - 

Income earned on sale of transferred assets, net (note 17)

  4,312   4,737   12,971   14,009 

Other expense, net

  -   (27)  -   (128)

Total other income (expenses)

  (6,427)  373   (30,829)  5,326 
                 

Loss before provision for income taxes

  (23,594)  (9,008)  (78,380)  (13,336)
                 

Provision (recovery) for income taxes (note 8)

  (822)  (1,027)  (5,557)  790 
                 

Net loss for the period

  (22,772)  (7,981)  (72,823)  (14,126)
                 

Other comprehensive income (loss), net of tax

                

Unrealized income (loss) on hedging activities (note 4)

  (483)  (1,674)  163   (510)

Net amount reclassified to earnings (note 4)

  (181)  (100)  (807)  (109)

Other comprehensive loss net of tax recovery of ($211) and ($566) for the three months ended September 30, 2023 and September 30, 2022, ($204) and ($197) for the nine months ended September 30, 2023 and September 30, 2022 (note 4)

  (664)  (1,774)  (644)  (619)
                 

Comprehensive loss, for the period

 $(23,436) $(9,755) $(73,467) $(14,745)
                 
                 

Basic and diluted loss per common share (note 9)

 $(2.09) $(0.74) $(6.71) $(1.31)
                 

Shares used in computing basic and diluted loss per common share (note 9)

  10,874,659   10,779,348   10,852,079   10,766,657 


See accompanying notes to consolidated financial statements 

 

 

 

Tucows Inc.

Consolidated Statements of Cash Flows

 

(Dollar amounts in thousands of U.S. dollars) 

(unaudited)

 

   

For the Three Months Ended September 30,

   

For the Nine Months Ended September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Cash provided by:

                               

Operating activities:

                               

Net loss for the period

  $ (22,772 )   $ (7,981 )   $ (72,823 )   $ (14,126 )

Items not involving cash:

                               

Depreciation of property and equipment

    9,275       7,285       26,770       20,063  

Impairment of property and equipment

    2,663       3       4,679       30  

Amortization of debt discount and issuance costs

    1,140       215       2,271       482  

Amortization of intangible assets

    2,620       2,842       8,101       8,528  

Net amortization contract costs

    (255 )     (136 )     (612 )     (608 )

Accretion of contingent consideration

    -       50       -       198  

Deferred income taxes (recovery)

    (3,258 )     (1,658 )     (9,381 )     (3,397 )

Excess tax benefits on share-based compensation expense

    -       (103 )     -       (158 )

Net Right of use operating assets/Operating lease liability

    (220 )     (715 )     (317 )     (771 )

Loss on disposal of domain names

    3       -       3       2  

Accretion of redeemable preferred shares

    2,872       1,250       9,247       1,250  

Loss on debt extinguishment

    -       -       14,680       -  

Write off of debt discount and issuance cost

    277       -       277       -  

Loss (Gain) on change in the fair value of forward contracts

    -       (135 )     1,624       (135 )

Amortization of discontinued cash flow hedge

    -       (254 )     (1,144 )     (254 )

Stock-based compensation expense

    2,308       1,569       6,606       4,396  

Change in non-cash operating working capital:

                               

Accounts receivable

    (677 )     (1,192 )     (5,785 )     (139 )

Contract assets

    1,293       892       4,177       (7,284 )

Inventory

    12       (1,092 )     (504 )     (2,611 )

Prepaid expenses and deposits

    1,049       684       (2,394 )     2,359  

Deferred costs of fulfillment

    1,520       1,915       (1,964 )     785  

Income taxes recoverable

    1,445       859       589       2,426  

Accounts payable

    (334 )     791       (5,433 )     6,949  

Accrued liabilities

    (4,000 )     (491 )     293       1,954  

Customer deposits

    (708 )     (2,528 )     2,957       (2,201 )

Deferred revenue

    (1,216 )     (3,050 )     4,623       (666 )

Accreditation fees payable

    27       (28 )     (314 )     (97 )

Net cash provided by/(used in) operating activities

    (6,936 )     (1,008 )     (13,774 )     16,975  
                                 

Financing activities:

                               

Proceeds received on exercise of stock options

    -       237       -       808  

Proceeds from issuance of notes payable

    -       -       227,258       -  

Redeemable preferred shares redemption

    -       -       (45,718 )     -  

Proceeds from redeemable preferred shares

    -       60,000       35,000       60,000  

Deferred notes payable financing costs

    70       -       (6,675 )     -  

Deferred preferred financing costs

    -       (754 )     145       (754 )

Contingent payments for acquisitions

    -       -       (1,600 )     (3,125 )

Proceeds received on syndicated revolver

    52,382       12,600       52,382       48,300  

Repayment of syndicated revolver

    (58,852 )     -       (68,652 )     -  

Deferred syndicate revolver issued

    (1,238 )     (403 )     (1,554 )     (668 )

Net cash (used in) provided by financing activities

    (7,638 )     71,680       190,586       104,561  
                                 

Investing activities:

                               

Additions to property and equipment

    (22,572 )     (46,676 )     (77,476 )     (100,018 )

Acquisition of intangible assets

    (32 )     -       (415 )     (117 )

Net cash used in investing activities

    (22,604 )     (46,676 )     (77,891 )     (100,135 )
                                 

Increase (decrease) in cash and cash equivalents, restricted cash, and restricted cash equivalents

    (37,178 )     23,996       98,921       21,401  
                                 

Cash and cash equivalents, restricted cash, and restricted cash equivalents beginning of period

    159,595       6,510       23,496       9,105  

Cash and cash equivalents, restricted cash, and restricted cash equivalents end of period

  $ 122,417     $ 30,506     $ 122,417     $ 30,506  
                                 

Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents within the interim consolidated balance sheets to the amounts shown in the interim consolidated statements of cash flows above:

                               

Cash and cash equivalents

    110,736       6,510       110,736       6,510  

Restricted cash included in funds held by trustee

    3,138       -       3,138       -  

Restricted cash included in secured notes reserve funds 

    8,543       -       8,543       -  

Total Cash and cash equivalents, restricted cash, and restricted cash equivalents end of period

  $ 122,417     $ 6,510     $ 122,417     $ 6,510  
                                 

Supplemental cash flow information:

                               

Interest paid

  $ 5,483     $ 3,005     $ 15,810     $ 6,891  

Income taxes paid, net

  $ 1,367     $ 472     $ 3,342     $ 2,759  

Supplementary disclosure of non-cash investing and financing activities:

                               

Property and equipment acquired during the period not yet paid for

  $ 74     $ 1,671     $ 74     $ 1,671  

 

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) is a corporate parent, allocating capital and providing efficient shared services to its three businesses Ting, Wavelo and Tucows Domains Services. Ting provides US consumers and small businesses with high-speed fixed Internet access in selected towns. Wavelo offers platform services which provide solutions to support Communication Service Providers ("CSPs") including subscription and billing management, network orchestration and provisioning, individual developer tools, and other professional services. Tucows Domains Services is 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 loss 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 of September 30, 2023 and the results of operations and cash flows for the interim periods ended September 30, 2023 and 2022. 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 U.S. Securities and Exchange Commission (the “SEC”) and U.S. Generally Accepted Accounting Principles issued by the Financial Accounting Standards Board. Certain information and footnote disclosures normally included in the Company's annual audited consolidated financial statements and accompanying notes have been condensed or omitted. 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, 2022 included in Tucows' 2022 Annual Report on Form 10-K/A filed with the SEC on June 6, 2023 (the “2022 Annual Report”). Except set forth as below, there have been no material changes to our significant accounting policies and estimates during the three and nine months ended September 30, 2023 as compared to the significant accounting policies and estimates described in our 2022 Annual Report.

 

Restricted cash

 

Restricted cash is solely in connection with the 2023 Term Notes as defined in "Note 7 - Notes Payable" and consists of (i) securitized assets cash receipts held by trustee and (ii) liquidity reserve funds. The non-current portion of the restricted cash is presented in "Secured notes reserve funds" on the Consolidated Balance Sheet.

 

3. Recent Accounting Pronouncements:

 

Recent Accounting Pronouncements Not Yet Adopted

 

None with an expected material impact on the Company.

 

 

4. Derivative Instruments and Hedging Activities:

 

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are foreign exchange rate risk and interest rate risk.

 

Since October 2012, the Company has employed a hedging program with a Canadian chartered bank to limit the potential foreign exchange fluctuations incurred on its future cash flows related to a portion of payroll, taxes, rent and payments to Canadian domain name registry suppliers that are denominated in Canadian dollars and are expected to be paid by its Canadian operating subsidiary. In May 2020, the Company entered into a pay-fixed, receive-variable interest rate swap with a Canadian chartered bank to limit the potential interest rate fluctuations incurred on its future cash flows related to variable interest payments on the Second Amended 2019 Credit Facility. The notional value of the interest rate swap was $70 million. During the third quarter of fiscal year 2022, the Company elected to discontinue its application of hedge accounting to its interest rate swaps prospectively. Until the interest rate swaps matured in June 2023, the derivatives continued to be carried at fair value in the accompanying Consolidated Balance Sheets with changes in their fair value from the date of discontinuance recognized in current period earnings in Interest expense, net in the Consolidated Statements of Operations and Comprehensive Loss. Unrealized gains and losses in Accumulated other comprehensive income (AOCI) as of the date of discontinuance were realized in net income over the remaining term of the underlying forecasted interest payments into interest expense over the original term of the hedged debt. Prior to the discontinuance, for the interest rate swap contracts, unrealized gains or losses on the effective portion of these contracts had been included in other comprehensive income (OCI) and reclassified to earnings when the hedged transaction settled. As of September 30, 2023 there are no interest swaps held by the Company.

 

The Company does not use hedging forward contracts for trading or speculative purposes. The foreign exchange contracts typically mature between one and twelve months, and the interest rate swap fully matured as of June 30, 2023.

 

The Company has designated certain of these foreign exchange transactions as cash flow hedges of forecasted transactions under ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASC Topic 815”). For certain contracts, as the critical terms of the hedging instrument, and of the entire hedged forecasted transaction, are the same, in accordance with ASC Topic 815, the Company has been able to conclude that changes in fair value and cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis. The Company designated the interest rate swap as a cash flow hedge of expected future interest payments at the inception of the contract. Accordingly, for the foreign exchange, unrealized gains or losses on the effective portion of these contracts were included within other comprehensive income and reclassified to earnings when the hedged transaction is settled. Cash flows from hedging activities were classified under the same category as the cash flows from the hedged items in the consolidated statements of cash flows. The fair value of the foreign exchange contract, as of  September 30, 2023 and the interest swap and foreign exchange contract as of December 31, 2022, is recorded as derivative instrument assets or liabilities. For certain contracts where the hedged transactions are no longer probable to occur, the loss on the associated forward contract is recognized in earnings.

 

 

6

 

As of September 30, 2023, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $14.4 million, of which $14.4 million met the requirements of ASC Topic 815 and were designated as hedges.

 

As of December 31, 2022, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $49.7 million, of which $49.7 million met the requirements of ASC Topic 815 and were designated as hedges.

 

As of September 30, 2023, the notional amount of interest swaps contracts that the Company held to pay-fixed, receive-variable interest rate swap was nil.

 

As of December 31, 2022, the notional amount of interest swaps contracts that the Company held to pay-fixed, receive-variable interest rate swap was $70 million, of which $70 million met the requirements of ASC Topic 815 and were designated as hedges. 

 

As of September 30, 2023, we had the following outstanding forward contracts to trade U.S. dollars in exchange for Canadian dollars:

 

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

 
             

October - December 2023

 $14,430   1.3721  $186 
  $14,430   1.3721  $186 

 

Fair value of derivative instruments and effect of derivative instruments on financial performance

 

The effect of these derivative instruments on our consolidated financial statements were as follows (amounts presented do not include any income tax effects).

 

Fair value of derivative instruments in the consolidated balance sheets 

 

Derivatives (Dollar amounts in thousands of U.S. dollars)

 

Balance Sheet Location

 As of September 30, 2023 Fair Value Asset  As of December 31, 2022 Fair Value Asset (Liability) 

Foreign Currency forward contracts designated as cash flow hedges (net)

 

Derivative instruments

 $186  $(84)

Interest rate swap contract discontinued as a cash flow hedge (net)

 

Derivative instruments

  -   1,598 

Total foreign currency and interest swap forward contracts (net)

 

Derivative instruments

 $186  $1,514 

 

Movement in AOCI balance for the three months ended September 30, 2023 (Dollar amounts in thousands of U.S. dollars)

 

  

Gains and losses on cash flow hedges

  

Tax impact

  

Total AOCI

 

Opening AOCI Balance - June 30, 2023

 $1,059  $(255) $804 

Other comprehensive income (loss) before reclassifications

  (637)  154   (483)

Amount reclassified from AOCI

  (238)  57   (181)

Other comprehensive income (loss) for the three months ended September 30, 2023

  (875)  211   (664)
             

Ending AOCI Balance - September 30, 2023

 $184  $(44) $140 

 

 

Movement in AOCI balance for the nine months ended September 30, 2023 (Dollar amounts in thousands of U.S. dollars)

 

  

Gains and losses on cash flow hedges

  

Tax impact

  

Total AOCI

 

Opening AOCI balance - December 31, 2022

 $1,032  $(248) $784 

Other comprehensive income (loss) before reclassifications

  215   (52)  163 

Amount reclassified from AOCI

  55   (13)  42 

Amortization of discontinued cash flow hedge

  (1,118)  269   (849)

Other comprehensive income (loss) for the nine months ended September 30, 2023

  (848)  204   (644)
             

Ending AOCI Balance - September 30, 2023

 $184  $(44) $140 

 

7

 
Effects of derivative instruments on income and OCI for the three months ended September 30, 2023 and 2022 are as follows (Dollar amounts in thousands of U.S. dollars) 
 

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

 $198 

Foreign currency forward contracts for the three months ended September 30, 2023

 $(483)

Cost of revenues

 $40 
          
     

Operating expenses

 $(97)

Foreign currency forward contracts for the three months ended September 30, 2022

 $(1,666)

Cost of revenues

 $(26)
          

Interest rate swap contract for the three months ended September 30, 2022

 $(8)

Interest expense, net

 $254 

 

Effects of derivative instruments on income and OCI for the nine months ended September 30, 2023 and 2022 are as follows (Dollar amounts in thousands of U.S. dollars) 

 

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

 $(38)

Foreign currency forward contracts for the nine months ended September 30, 2023

 $163 

Cost of revenues

 $(17)
          
     

Operating expenses

 $(145)

Foreign currency forward contracts for the nine months ended September 30, 2022

 $(1,941)

Cost of revenues

 $(35)
          

Interest rate swap contract for the nine months ended September 30, 2022

 $1,431 

Interest expense, net

 $323 

 

 

5. Goodwill and Other Intangible Assets:

 

Goodwill:

 

Goodwill represents the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed in our acquisitions.

 

The Company's Goodwill balance remained consistent at $130.4 million as of  September 30, 2023 and December 31, 2022. The Company's goodwill relates 83% ($107.7 million) to the Tucows Domains operating segment and 17% ($22.7 million) to the Ting operating segment. 

 

Goodwill is not amortized, but is subject to an annual impairment test, or more frequently if impairment indicators are present. No impairment charge was recognized during the three and nine months ended September 30, 2023 and 2022.

 

8

 

Other Intangible Assets:

 

Intangible assets consist of acquired brand, technology, customer relationships, surname domain names, direct navigation domain names and network rights. The Company considers its intangible assets consisting of surname domain names and direct navigation domain names as indefinite life intangible assets. The Company has the exclusive right to these domain names as long as the annual renewal fees are paid to the applicable registry. Renewals occur routinely and at a nominal cost. The indefinite life intangible assets are not amortized but are subject to impairment assessments performed throughout the year. As part of the normal renewal evaluation process during the periods ended  September 30, 2023 and September 30, 2022, the Company assessed that all domain names that were originally acquired in the June 2006 acquisition of Mailbank.com Inc. that were up for renewal, should be renewed. 

 

Intangible assets, comprising brand, technology, customer relationships and network rights are being amortized on a straight-line basis over periods of two to fifteen years.

 

For the three and nine months ended September 30, 2023 the Company acquired customer relationship assets through hosting agreements for $0.1 million and $0.4 million respectively. These assets are being amortized over seven years.

 

Net book value of acquired intangible assets consist of the following (Dollar amounts in thousands of U.S. dollars):

 

  

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, June 30, 2023

 $11,155  $1,129  $1,904  $17,111  $2,460  $933  $34,692 

Acquisition of customer relationships

  -   -   -   32   -   -   32 

Additions to/(disposals from) domain portfolio, net

  (2)  (1)  -   -   -   -   (3)

Amortization expense

  -   -   (518)  (1,922)  (155)  (25)  (2,620)

Balances, September 30, 2023

 $11,153  $1,128  $1,386  $15,221  $2,305  $908  $32,101 

 

  

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, 2022

 $11,155  $1,129  $2,940  $20,813  $2,770  $983  $39,790 

Acquisition of customer relationships

  -   -   -   415   -   -   415 

Additions to/(disposals from) domain portfolio, net

  (2)  (1)  -   -   -   -   (3)

Amortization expense

  -   -   (1,554)  (6,007)  (465)  (75)  (8,101)

Balances, September 30, 2023

 $11,153  $1,128  $1,386  $15,221  $2,305  $908  $32,101 

 

The following table shows the estimated amortization expense for each of the next 5 years and thereafter, assuming no further additions to acquired intangible assets are made (Dollar amounts in thousands of U.S. dollars): 

 

  Year ending 
  December 31, 

Remainder of 2023

 $2,488 

2024

  5,565 

2025

  4,382 

2026

  2,802 

2027

  1,608 

Thereafter

  2,975 

Total

 $19,820 

 

9

 
 

6. Syndicated Revolver:

 

Third Amended 2019 Credit Facility 

 

In connection with entering into the 2023 Credit Agreement, on September 22, 2023, the Company paid off the principal balance, including accrued interest thereon, of the revolving loans outstanding under the Third Amended and Restated Credit Agreement (the “RBC Credit Agreement”), dated as of August 8, 2022, as amended, by and among the Company, certain subsidiaries of the Company as borrowers, certain other subsidiaries of the Company as guarantors, Royal Bank of Canada, as administrative agent (“RBC”), and the lenders party thereto, pursuant to which Tucows’ prior credit facility that provided the Borrowers with a $240 million revolving credit facility (the "2019 Credit Facility").  The RBC Credit Agreement automatically terminates upon the receipt by RBC of certain backstop letters of credit to be delivered by BMO.  

 

Prior to entering into the 2023 Credit Agreement, during the nine months ended September 30, 2023 the Company made repayments of $17.8 million on the 2019 Credit Facility.

 

2023 Credit Facility
 
On September 22, 2023, the Company and its wholly owned subsidiaries, Tucows.com Co., Ting Inc., Tucows (Delaware) Inc., Wavelo, Inc. and Tucows (Emerald), LLC (each, a “Borrower” and together, the “Borrowers,” collectively with the Company, “Tucows”) and certain other subsidiaries of the Company, as guarantors, entered into a Credit Agreement (the “Credit Agreement”) with Bank of Montreal, as administrative agent (“BMO” or the “Agent”), and the lenders party thereto, to, among other things, provide the Borrowers with a revolving credit facility in an aggregate amount not to exceed $240 million (the “2023 Credit Facility”). The Borrowers may request an increase to the Credit Facility through new commitments of up to $60 million if the Total Funded Debt to Adjusted EBITDA Ratio (as defined in the Credit Agreement) is less than 3.75:1.00.  The Credit Facility expires on September 22, 2026, which is the third anniversary of the effective date of the Credit Agreement. 
 
In connection with the 2023 Credit Facility, the Company incurred $0.9 million of fees paid to the Lenders and $0.3 million of legal fees related to the debt issuance. These fees have been reflected as a reduction to the carrying amount of the loan payable and will be amortized over the term of the credit facility agreement. The Company evaluated the issuance of the 2023 Credit Facility and the termination of the 2019 Credit Facility (collectively referred to as the "Debt Transactions") under the loan modification and extinguishment guidance within ASC 470. The Debt Transactions were accounted for as a partial modification, partial extinguishment and new debt issuance at the syndicated lender level. Based on the application of the loan modification and extinguishment guidance within ASC 470 to the Debt Transactions, the Company has treated $50.9 million of the loan principal under the 2019 Credit Facility as an extinguishment of debt and $50.9 million of the loan principal under the 2023 Credit Facility as issuance of new debt. The remaining loan principal on the 2023 Credit Facility was treated as a loan modification within the guidance of ASC 470. In accordance with the debt extinguishment, the Company expensed $0.1 million of the unamortized debt issuance costs to Interest expense, net in the Consolidated Statements of Operation. 
 
During the three months ended September 30, 2023, the Company made a draw of $1.5 million on the 2023 Credit Facility. Subsequently on October 3, 2023, the Company made a repayment of $1.4 million on the 2023 Credit Facility. 
 

2023 Credit Facility Terms

 

The 2023 Credit Agreement contains customary representations and warranties, affirmative and negative covenants, and events of default. The 2023 Credit Agreement requires that the Company comply with certain customary non-financial covenants and restrictions. In addition, the Company has agreed to comply with the following financial covenants: (1) a leverage ratio by maintaining at all times a Total Funded Debt to Adjusted EBITDA Ratio of not more than (i) 4.50:1:00 at any time from and after the Closing Date to and including December 30, 2023; (ii) 4.25:1:00 from December 31, 2023 to and including March 30, 2024; (iii) 4.00:1.00 from March 31, 2024 to and including June 29, 2024; and (iv) 3.75:1.00 thereafter; and (2) an interest coverage ratio by maintaining as of the end of each rolling four financial quarter period, an Interest Coverage Ratio (as defined in the Credit Agreement) of not less than 3.00:1.00. The required principal repayment of $223.4 million is due in 2026.

 

During the three and nine months ended September 30, 2023, and the three and nine months ended September 30, 2022 the Company was in compliance with the covenants under its credit agreements in effect at the time.  

 

Borrowings under the 2023 Credit Agreement will accrue interest and standby fees based on the Company's Total Funded Debt to Adjusted EBITDA ratio and the availment type as follows: 

 

  

If Total Funded Debt to EBITDA is:

 

Availment type or fee

 

Less than 2.00

  

Greater than or equal to 2.00 and less than 2.75

  

Greater than or equal to 2.75 and less than 3.50

  

Greater than or equal to 3.50 and less than 4.00

  

Greater than or equal to 4.00

 

Canadian dollar borrowings based on the Canadian Dollar Offered Rate or U.S. dollar borrowings based on SOFR and letter of credit fees (Margin)

  1.50%  2.00%  2.50%  3.00%  3.50%

Canadian borrowings based on Prime Rate or Canadian or U.S. dollar borrowings based on Base Rate (Margin)

  0.25%  0.75%  1.25%  1.75%  2.25%

Standby fees

  0.30%  0.40%  0.50%  0.60%  0.70%

 

10

 

The following table summarizes Excluding-Ting's borrowings under the credit facilities (Dollar amounts in thousands of U.S. dollars): 

 

  

September 30, 2023

  

December 31, 2022

 
         

Revolver

 $223,430  $239,700 

Less: unamortized debt discount and issuance costs

  (1,519)  (770)

Total Syndicated Revolver

  221,911   238,930 

Less: Syndicated Revolver, current portion

  -   - 

Syndicated Revolver, long-term portion

 $221,911  $238,930 

 

 

7. Notes Payable:

 

2023 Notes

 

On May 4, 2023 (the “Closing Date”), Tucows Inc. through its indirect and wholly owned subsidiaries, including Ting Fiber, LLC entered into a definitive agreement relating to a securitized financing facility related to a privately placed securitization transaction. On the Closing Date, Ting Issuer LLC, a Delaware limited liability company (the “Issuer”), a limited purpose, bankruptcy-remote, indirect wholly owned subsidiary of the Company issued (i) $168,357,000 of its 5.95% Secured Fiber Revenue Notes, Series 2023-1, Class A-2, (ii) $23,289,000 of its 7.40% Secured Fiber Revenue Notes, Series 2023-1, Class B and (iii) $46,859,000 initial principal amount of 9.95% Secured Fiber Revenue Notes, Series 2023-1, Class C, together, the “2023 Term Notes”. The offering was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). The net proceeds from the issuance of the 2023 Term Notes were $220.5 million, after deducting a debt discount of $11.2 million and issuing costs of $6.7 million.

 

The debt discount and issuance costs of the 2023 Term Notes are being amortized using the straight line method over a five-year period between the Closing date and the anticipated repayment date. During the three and nine months ended September 30, 2023, the Company recognized  $0.9 million and $1.5 million of interest expense related to the amortization of the debt discount and issuance costs of the 2023 Notes.

 

The 2023 Term Notes are issued under an indenture, dated May 4, 2023 (the “Base Indenture”) between the Issuer and Citibank, N.A., as trustee (the “Indenture Trustee”) as supplemented by the Series 2023-1 supplemental indenture dated May 4, 2023, (the “Series 2023-1 Supplement” and, together with the Base Indenture, the “Indenture”), between the Issuer and the Trustee. Interest payments on the 2023 Term Notes are payable on a monthly basis. The legal final maturity date of the 2023 Term Notes is in April of 2053, but, unless earlier prepaid to the extent permitted under the Indenture, the anticipated repayment date of the 2023 Term Notes will be in April 2028. If the Issuer has not repaid or refinanced the 2023 Term Notes prior to the anticipated repayment date, additional interest will accrue on the 2023 Term Notes in an amount equal to the greater of (A) 5.00% per annum and (B) a per annum interest rate equal to the excess, if any, by which the sum of the following exceeds the original interest rate of such 2023 Term Note (i) the yield to maturity (adjusted to a “mortgage equivalent basis” pursuant to the standards and practices of the Securities Industry and Financial Markets Association) on such anticipated repayment date of the United States Treasury Security having a term closest to 10 years, plus (ii) 5.00%, plus (iii) (x) for the 2023 Class A-2 Notes, 3.50%, (y) for the 2023 Class B Notes, 5.00% and (z) for the 2023 Class C Notes, 7.82%.

 

The 2023 Notes are secured by certain of the Company’s revenue-generating assets, consisting principally of fiber-network related agreements, fiber-network assets and customer contracts (collectively, the “Securitized Assets”) that are owned by certain other limited-purpose, bankruptcy-remote, wholly owned indirect subsidiaries of the Company that act as the Guarantors (collectively with the Issuer, the “Obligor”) under the Base Indenture. The 2023 Term Notes are subject to a series of covenants, restrictions and other investor protections including (i) that the Issuer maintains specified reserve accounts to be used to make required payments in respect of the 2023 Term Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, (iii) certain indemnification payments (iv) the guarantors comply with standard bankruptcy-remoteness covenants, including not guaranteeing or being liable for other affiliates debts or liabilities and (v) covenants relating to recordkeeping, access to information, and similar matters.

 

As of September 30, 2023, we were in compliance with all required covenants. As of September 30, 2023, the Company's scheduled principal repayments for the 2023 Term Notes are set to occur after 2027.

 

 

The following table summarizes Ting's borrowings under the 2023 Term Notes (Dollar amounts in thousands of U.S. dollars): 

 

  

September 30, 2023

 
     

Principal

 $238,505 

Less: unamortized issuance costs

  (6,121)

Less: unamortized discount

  (10,328)

Total notes payable

  222,056 

Less: notes payable, current portion

  - 

Note payable, long-term portion

 $222,056 

 

11

 

Restricted Cash

 

Under the terms of the Indenture, revenues generated from the Securitized Assets are deposited into accounts controlled by the Indenture Trustee within two business days of receipt. The Company has no access to or control of the funds held in trust until they are disbursed by the Indenture Trustee on the 20th day of each calendar month (the “Payment Date”). In accordance with the Indenture, on each Payment Date the Indenture Trustee disburses, on behalf of the Obligor, administration fees to service providers, interest payments to the noteholders, liquidity reserve top-ups (if required), and the remaining funds to accounts controlled by the Obligor. Funds held in trust with the Indenture Trustee at the reporting date are presented as “Restricted cash” on the Company’s Consolidated Balance Sheet. 

 

At September 30, 2023, Restricted cash totaled $3.1 million.

 

Under the terms of the Indenture, the Company is also required to maintain a liquidity reserve fund equal to the sum of (A) six times the total amount of fund administration fees payable on each payment date after May 20, 2023 and (B) six times the total amount of monthly interest on the 2023 Notes due and payable on each payment date after May 20, 2023. The liquidity reserve is maintained with the Indenture Trustee until the maturity of the 2023 Term Notes and the balance is presented as “Secured notes reserve funds” on the Company’s Consolidated Balance Sheet.

 

At September 30, 2023 Secured notes reserve funds totaled $8.5 million. 

 

8. Income Taxes:

 

The Company's provision for income taxes for interim periods is determined by using an estimated annual effective tax rate, adjusted for discrete items arising during the quarter. At each quarter, the Company updates the estimated annual effective tax rate and makes a year-to-date adjustment to the provision. The estimated annual effective tax rate is subject to volatility due to several factors, including accurately forecasting the Company's net income before tax and taxable income or loss and the mix of tax jurisdictions to which they relate, intercompany transactions, and changes in statutes, regulations, and case law.

 

For the three months and nine months ended September 30, 2023, the Company recorded an income tax recovery of $0.8 million and $5.6 million on net loss before income taxes of $23.6 million and $78.4 million respectively, using an estimated effective tax rate for the fiscal year ending December 31, 2023 adjusted for certain minimum state taxes. Our effective tax rates for the three months and nine months ended September 30, 2023 differs from the U.S. federal statutory rate primarily due to changes in valuation allowance on net operating losses and foreign tax credits, and the impact of foreign earnings.

 

Comparatively, for the three and nine months ended September 30, 2022, the Company recorded an income tax recovery of $1.0 million and an income tax expense of $0.8 million respectively, on net loss before income taxes of $9.0 million and $13.3 million respectively, using an estimated effective tax rate for the fiscal year ending December 31, 2022. Our effective tax rates for the three and nine months ended September 30, 2022 differ from the U.S. federal statutory rate primarily due to changes in valuation allowance on foreign tax credit, state tax expense and the impact of foreign earnings. 

 

 

 

9. Basic and Diluted Earnings per Common Share:

 

The following table reconciles the numerators and denominators of the basic and diluted earnings per common share computation (Dollar amounts in thousands of US dollars, except for share data):

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2023

   

2022

   

2023

   

2022

 
                                 

Numerator for basic and diluted earnings per common share:

                               

Net loss for the period

  $ (22,772 )   $ (7,981 )   $ (72,823 )   $ (14,126 )
                                 

Denominator for basic and diluted earnings per common share:

                               

Basic weighted average number of common shares outstanding

    10,874,659       10,779,348       10,852,079       10,766,657  

Effect of outstanding stock options

    -       -       -       -  

Diluted weighted average number of shares outstanding

    10,874,659       10,779,348       10,852,079       10,766,657  
                                 

Basic loss per common share

  $ (2.09 )   $ (0.74 )   $ (6.71 )   $ (1.31 )
                                 

 

For the three and nine months ended September 30, 2023 and September 30, 2022 the Company recorded a net loss, thus all outstanding options were considered anti-dilutive and excluded from the computation of diluted income per common share.  

 

12

 
 

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 t