Company Quick10K Filing
Tucows
Price54.57 EPS1
Shares11 P/E42
MCap589 P/FCF22
Net Debt94 EBIT21
TEV683 TEV/EBIT32
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

TCX 10Q Quarterly Report

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

Tucows Earnings 2021-03-31

Balance SheetIncome StatementCash Flow
4203362521688402012201420172020
Assets, Equity
1008060402002012201420172020
Rev, G Profit, Net Income
804714-19-52-852012201420172020
Ops, Inv, Fin

tcx20191231_10k.htm
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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 March 31, 2021

 

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 May 3, 2021, there were 10,624,415 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 March 31, 2021 and December 31, 2020

3

  

  

  

  

Consolidated Statements of Operations and Comprehensive Income (unaudited) for the three months ended March 31, 2021 and 2020

4

  

  

  

  

Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2021 and 2020

5

  

  

  

  

Notes to Consolidated Financial Statements (unaudited)

6

  

  

  

Item 2.

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

22

  

  

  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

43

  

  

  

Item 4.

Controls and Procedures

44

  

  

  

PART II

OTHER INFORMATION

  

  

  

Item 1.

Legal Proceedings

45

  

  

  

Item 1A.

Risk Factors

45

  

  

  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds 

  46

 

 

 

Item 3.

Defaults Upon Senior Securities

46

  

  

  

Item 4.

Mine Safety Disclosures

46

 

 

 

Item 5.

Other Information

46

  

  

  

Item 6.

Exhibits

47

  

  

  

Signatures

48


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.

 

 

 

PART I.    FINANCIAL INFORMATION

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

 $8,310  $8,311 

Accounts receivable, net of allowance for doubtful accounts of $206 as of March 31, 2021 and $222 as of December 31, 2020

  15,868   15,540 

Inventory

  2,317   1,875 

Prepaid expenses and deposits

  14,579   16,845 

Derivative instrument asset, current portion (note 5)

  2,893   3,860 

Deferred costs of fulfillment, current portion (note 11)

  96,861   93,467 

Income taxes recoverable

  1,316   1,302 

Total current assets

  142,144   141,200 
         
Deferred costs of fulfillment, long-term portion (note 11)  18,316   17,599 

Derivative instrument asset, long-term portion (note 5)

  65   - 
Deferred tax asset  188   226 

Property and equipment

  129,846   117,530 

Right of use operating lease asset

  11,893   11,238 
Contract costs  369   362 

Intangible assets (note 6)

  44,978   47,444 

Goodwill (note 6)

  116,304   116,304 

Total assets

 $464,103  $451,903 
         
         

Liabilities and Stockholders' Equity

        
         

Current liabilities:

        

Accounts payable

 $9,969  $6,329 

Accrued liabilities

  11,028   10,235 

Customer deposits

  15,527   15,402 

Derivative instrument liability, current portion (note 5)

  83   99 

Operating lease liability, current portion (note 12)

  1,982   1,761 

Deferred revenue, current portion (note 10)

  132,427   127,336 

Accreditation fees payable, current portion

  1,023   940 

Income taxes payable

  14   863 

Total current liabilities

  172,053   162,965 
         

Derivative instrument liability, long-term portion (note 5)

  -   114 

Deferred revenue, long-term portion (note 10)

  25,167   24,909 

Accreditation fees payable, long-term portion

  189   195 

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

  9,668   9,179 

Loan payable, long-term portion (note 7)

  121,802   121,733 

Other long-term liability (note 4)

  3,512   3,416 

Deferred tax liability

  24,298   24,694 
         

Stockholders' equity (note 14)

        

Preferred stock - no par value, 1,250,000 shares authorized; none issued and outstanding

  -   - 

Common stock - no par value, 250,000,000 shares authorized; 10,624,415 shares issued and outstanding as of March 31, 2021 and 10,612,414 shares issued and outstanding as of December 31, 2020

  21,511   20,798 

Additional paid-in capital

  1,778   1,458 

Retained earnings

  82,255   80,106 

Accumulated other comprehensive income (note 5)

  1,870   2,336 

Total stockholders' equity

  107,414   104,698 

Total liabilities and stockholders' equity

 $464,103  $451,903 
         
Contingencies (note 18)          

 

See accompanying notes to consolidated financial statements 

 

 

 

Tucows Inc.

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)

 $70,875  $83,985 
         

Cost of revenues (note 10)

        

Direct cost of revenues

  46,187   53,188 

Network expenses

  3,238   2,416 

Depreciation of property and equipment

  3,638   2,877 

Amortization of intangible assets (note 6)

  299   354 

Impairment of property and equipment

  60   - 

Total cost of revenues

  53,422   58,835 
         

Gross profit

  17,453   25,150 
         

Expenses:

        

Sales and marketing

  8,311   8,985 

Technical operations and development

  3,132   2,751 

General and administrative

  4,953   4,741 

Depreciation of property and equipment

  121   113 

Amortization of intangible assets (note 6)

  2,320   2,947 

Loss (gain) on currency forward contracts (note 5)

  (253)  441 

Total expenses

  18,584   19,978 
         

Income from operations

  (1,131)  5,172 
         

Other income (expenses):

        

Interest expense, net

  (936)  (1,150)

Gain on sale of Ting customer assets, net (note 17)

  5,395   - 

Other expense, net

  (96)  (87)

Total other income (expenses)

  4,363   (1,237)
         

Income before provision for income taxes

  3,232   3,935 
         

Provision for income taxes (note 8)

  1,083   1,101 
         

Net income for the period

  2,149   2,834 
         

Other comprehensive income, net of tax

        

Unrealized income (loss) on hedging activities (note 5)

  368   (1,234)

Net amount reclassified to earnings (note 5)

  (834)  43 

Other comprehensive income (loss) net of tax expense (recovery) of ($140) and ($366) for the three months ended March 31, 2021 and March 31, 2020, respectively (note 5)

  (466)  (1,191)
         

Comprehensive income, net of tax for the period

 $1,683  $1,643 
         
         

Basic earnings per common share (note 9)

 $0.20  $0.27 
         

Shares used in computing basic earnings per common share (note 9)

  10,617,807   10,612,230 
         

Diluted earnings per common share (note 9)

 $0.20  $0.26 
         

Shares used in computing diluted earnings per common share (note 9)

  10,796,762   10,713,678 


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 March 31,

 
  

2021

  

2020

 

Cash provided by:

        

Operating activities:

        

Net income for the period

 $2,149  $2,834 

Items not involving cash:

        

Depreciation of property and equipment

  3,759   2,990 

Impairment of property and equipment

  60   - 

Amortization of debt discount and issuance costs

  67   67 

Amortization of intangible assets

  2,619   3,301 

Net amortization contract costs

  (7)  29 

Accretion of contingent consideration

  96   87 

Deferred income taxes (recovery)

  (220)  (190)

Excess tax benefits on share-based compensation expense

  (172)  (180)

Net Right of use operating assets/Operating lease liability

  55   (179)

Loss on disposal of domain names

  1   13 

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

  166   348 

Stock-based compensation

  1,022   801 

Change in non-cash operating working capital:

        

Accounts receivable

  (328)  2,151 

Inventory

  (442)  904 

Prepaid expenses and deposits

  2,266   25 

Deferred costs of fulfillment

  (4,111)  (2,853)

Income taxes recoverable

  (689)  500 

Accounts payable

  1,451   1,771 

Accrued liabilities

  793   (1,831)

Customer deposits

  125   58 

Deferred revenue

  5,349   3,342 

Accreditation fees payable

  77   85 

Net cash provided by operating activities

  14,086   14,073 
         

Financing activities:

        

Proceeds received on exercise of stock options

  229   17 

Payment of tax obligations resulting from net exercise of stock options

  (218)  (182)

Repurchase of common stock

  -   (3,117)

Payment of loan payable costs

  -   (25)

Net cash provided by (used in) financing activities

  11   (3,307)
         

Investing activities:

        

Additions to property and equipment

  (13,944)  (9,943)

Acquisition of Cedar Holdings Group, net of cash of $66 (note 4)

  -   (8,770)

Acquisition of intangible assets

  (154)  - 

Net cash used in investing activities

  (14,098)  (18,713)
         

Increase (decrease) in cash and cash equivalents

  (1)  (7,947)
         

Cash and cash equivalents, beginning of period

  8,311   20,393 

Cash and cash equivalents, end of period

 $8,310  $12,446 
         
         
         

Supplemental cash flow information:

        

Interest paid

 $949  $1,154 

Income taxes paid, net

 $2,381  $956 

Supplementary disclosure of non-cash investing and financing activities:

        

Property and equipment acquired during the period not yet paid for

 $3,320  $1,102 

Fair value of shares issued for acquisition of Cedar Holdings Group

 $-  $2,000 

Fair value of contingent consideration for acquisition of Cedar Holdings Group

 $-  $3,065 

 

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:

 
Recent Accounting Pronouncements Not Yet Adopted
 

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. 

 

 

 
5. 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 Credit facility. The notional value of the interest rate swap was $70 million. 
 
The Company does not use hedging forward contracts for trading or speculative purposes. The foreign exchange contracts typically mature between one and eighteen months, and the interest rate swap matures in June 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) (“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 of being hedged are expected to completely offset at inception and on an ongoing basis. The Company has also designated the interest rate swap as a cash flow hedge of expected future interest payments. Accordingly, for the foreign exchange and interest rate swap contracts, unrealized gains or losses on the effective portion of these contracts have been included within other comprehensive income and reclassified to earnings when the hedged transaction is recognized in earnings. Cash flows from hedging activities are 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 contracts, as of  March 31, 2021 and December 31, 2020, 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.

 

As of March 31, 2021, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $20.7 million, of which $17.5 million met the requirements of ASC Topic 815 and were designated as hedges.

 

As of December 31, 2020, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars wa s $31.8 million, of which $26.8 million met the requirements of ASC Topic 815 and were designated as hedges.
 
As of March 31, 2021, 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 / (Liability) 
             
April - June 2021  9,878   1.4283   1,352 
July - September 2021  10,781   1.4362   1,541 
  $20,659   1.4324  $2,893 

 

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 $70 million. 

 

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 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 $2,454  $3,254 
Interest rate swap contract designated as a cash flow hedge (net) Derivative instruments  (18) $(213)
Foreign Currency forward contracts not designated as cash flow hedges (net) Derivative instruments  439   606 
Total foreign currency and interest swap forward contracts (net) Derivative instruments $2,875  $3,647 
 

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

 $3,038  $(702) $2,336 

Other comprehensive income (loss) before reclassifications

  480   (112)  368 

Amount reclassified from AOCI

  (1,086)  252   (834)

Other comprehensive income (loss) for the three months ended March 31, 2021

  (606)  140   (466)
             

Ending AOCI Balance - March 31, 2021

 $2,432  $(562) $1,870 

 

 

Effects of derivative instruments on income and other comprehensive income (OCI) for the three months ended  March 31, 2021 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 $949 
Foreign currency forward contracts for the three months ended March 31, 2021 $(615)Cost of revenues $156 
          
Interest rate swap contract for the three months ended March 31, 2021 $149 Interest expense, net $(19)
          
     Operating expenses $(45)
Foreign currency forward contracts for the three months ended March 31, 2020 $(1,191)Cost of revenues $(13)
          
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

 $420  $(93)
         

Gain (loss) on change in fair value

 $(167) $(348)

 

 
6. 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 is $116.3 million as of  March 31, 2021 and $116.3 million as of December 31, 2020. The Company's goodwill relates  7% ( $8.6 million) to its Fiber Internet Services operating segment,  nil to its Mobile Services operating segment and  93% ( $107.7 million) to its Domain Services operating segment.
 
Goodwill is not amortized, but is subject to an annual impairment test, or more frequently if impairment indicators are present. No impairment was recognized during the three months ended March 31, 2021 and 2020.
 

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  March 31, 2021 and March 31, 2020, 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.

 

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, December 31, 2020

 $11,157  $1,135  $7,021  $26,664  $274  $1,193  $47,444 
Acquisition of customer relationships  -   -   -   154   -   -   154 
Additions to/(disposals from) domain portfolio, net  (1)  -   -   -   -   -   (1)

Amortization expense

  -   -   (518)  (1,802)  (274)  (25)  (2,619)

Balances, March 31, 2021

 $11,156  $1,135  $6,503  $25,016  $-  $1,168  $44,978 

 

 

The following table shows the estimated amortization expense for each of the next 5 years, assuming no further additions to acquired intangible assets are made (Dollar amounts in thousands of U.S. dollars): 
 
  Year ending 
  December 31, 
Remainder of 2021 $7,025 
2022  9,364 
2023  8,674 
2024  3,226 
2025  2,587 
Thereafter  1,811 
Total $32,687 

 

 

7. Loan Payable:

 

Amended 2019 Credit Facility

 

On June 14, 2019, the Company and its wholly-owned subsidiaries, Tucows.com Co., Ting Fiber, Inc., Ting Inc., Tucows (Delaware) Inc. and Tucows (Emerald), LLC entered into an Amended and Restated Senior Secured Credit Agreement with Royal Bank of Canada (“RBC”), as administrative agent, and lenders party thereto (collectively with RBC, the “Lenders”) under which the Company has access to an aggregate of up to $240 million in funds, which consists of $180 million guaranteed credit facility and a $60 million accordion facility. On November 27, 2019, the Company entered into Amending Agreement No. 1 to the Amended and Restated Senior Secured Credit Agreement (collectively with the Amended and Restated Senior Secured Credit Agreement, the “Amended 2019 Credit Facility”) to amend certain defined terms in connection with the Cedar acquisition.

 

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”).

 

The obligations of the Company under the Amended 2019 Credit Agreement are secured by a first priority lien on substantially all of the personal property and assets of the Company and has a four-year term, maturing on June 13, 2023.
 
Credit Facility Terms
 
The Amended 2019 Credit Facility is revolving with interest only payments with no scheduled repayments during the term.

 

 

The Amended 2019 Credit Facility contains customary representations and warranties, affirmative and negative covenants, and events of default. The Amended 2019 Credit Facility requires that the Company to comply with the following financial covenants: (i) at all times, a Total Funded Debt to Adjusted EBITDA Ratio (as defined in the Amended 2019 Credit Agreement) of 3.50:1; and (ii) with respect to each fiscal quarter, an Interest Coverage Ratio (as defined in the Amended 2019 Credit Agreement) of not less than 3.00:1. Further, the Company’s maximum annual Capital Expenditures cannot exceed 110% of the forecasted capital expenditures of its annual business plan. In addition, share repurchases require the Lenders’ consent if the Company’s Total Funded Debt to Adjusted EBITDA ratio exceeds 2.00:1. During the three months ended March 31, 2021, and the  three months ended March 31, 2020 the Company was in compliance with these covenants. 

 

Borrowings under the Amended 2019 Credit Facility 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 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)  1.50%  1.85%  2.35%  2.85%
Canadian or U.S. dollar borrowings based on Prime Rate or U.S. dollar borrowings based on Base Rate (Margin)  0.25%  0.60%  1.10%  1.60%
Standby fees  0.30%  0.37%  0.47%  0.57%
 
The following table summarizes the Company’s borrowings under the credit facilities (Dollar amounts in thousands of U.S. dollars): 
 
  

March 31, 2021

  

December 31, 2020

 
         

Revolver

 $122,400  $122,400 

Less: unamortized debt discount and issuance costs

  (598)  (667)

Total loan payable

  121,802   121,733 

Less: loan payable, current portion

  -   - 

Loan payable, long-term portion

 $121,802  $121,733 
 
The following table summarizes our scheduled principal repayments as of  March 31, 2021 (Dollar amounts in thousands of U.S. dollars):
 

Remainder of 2021

 $- 

2022

  - 

2023

  122,400 
  $122,400 
 

 

 
8. Income Taxes:
 

For the three months ended March 31, 2021, we recorded an income tax expense of $1.1 million on income before income taxes of $3.2 million, using an estimated effective tax rate for the fiscal year ending December 31, 2021 (“Fiscal 2021”) adjusted for certain minimum state taxes as well as the inclusion of a $0.2 million tax expense related to ASU No. 2016-09—Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which requires all excess tax benefits and tax deficiencies related to employee share-based payments to be recognized through income tax expense. Our effective tax rate for the three months ended  March 31, 2021 is impacted by discrete adjustments resulting from finalization of prior period tax filings, foreign exchange and mark-to-market adjustments.

 

Comparatively, for the three months ended March 31, 2020, the Company recorded an income tax expense of $1.1 million on income before taxes of $3.9 million, using an estimated effective tax rate for the 2020 fiscal year and adjusted for the $0.2 million tax recovery impact related to ASU 2016-09. 

 

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 not have significant interest and penalties accrued at  March 31, 2021 and December 31, 2020, respectively.

 

 
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 March 31,

 
  

2021

  

2020

 
         

Numerator for basic and diluted earnings per common share:

        

Net income for the period

 $2,149  $2,834 
         

Denominator for basic and diluted earnings per common share:

        

Basic weighted average number of common shares outstanding

  10,617,807   10,612,230 

Effect of outstanding stock options

  178,955   101,448 

Diluted weighted average number of shares outstanding

  10,796,762   10,713,678 
         

Basic earnings per common share

 $0.20  $0.27 
         

Diluted earnings per common share

 $0.20  $0.26 

 

For the three months ended March 31, 2021, options to purchase 4,004 common shares were not included in the computation of diluted income per common share because the options’ exercise price was greater than the average market price of the common shares for the period as compared to the three months ended March 31, 2020, where 138,506 outstanding options were not included in the computation.

 
 
 

10. Revenue:

 
Significant accounting policy
 
The Company’s revenues are derived from (a) the provisioning of retail fiber Internet services in our Fiber Internet Services segment, (b) the provisioning of wholesale mobile platform services, professional services and the provisioning of retail mobile services in our Mobile Services segment; and from (c) domain name registration contracts, other domain related value-added services, domain sale contracts, and other advertising revenue in our Domain Services segment. 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)

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.

 

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)

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.

 

Ting Mobile 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 Mobile and Ting Internet customers is computed based on the customer’s activation date. In order to recognize revenue as the Company satisfies its obligations, we compute the amount of revenues earned but not billed from the end of each billing cycle to the end of each reporting period. In addition, revenues associated with the sale of wireless devices and accessories and 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.
 
 

(c)

Domain Services

 

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

 

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

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

 

The Company also sells the rights to the Company’s portfolio domains or names acquired through the Company’s domain expiry stream. Revenue generated from sale of domain name contracts, containing a distinct performance obligation to transfer the domain name rights under the Company’s control, is generally recognized once the rights have been transferred and payment has been received in full.
 
Advertising revenue is derived through domain parking monetization, whereby the Company contracts with third-party Internet advertising publishers to direct web traffic from the Company’s domain expiry stream domains and Internet portfolio domains to advertising websites. Compensation from Internet advertising publishers is calculated variably on a cost-per-action basis based on the number of advertising links that have been visited in a given month. Given that the variable consideration is calculated and paid on a monthly basis, no estimation of variable consideration is required.

 

Disaggregation of Revenue

 

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

 

  

Three Months Ended March 31,

 
  

2021

  

2020

 

Fiber Internet Services:

        

Fiber Internet Services

 $5,371  $4,308 
         

Mobile Services:

        

Retail mobile services

  2,014   20,148 

Mobile platform services

  349   - 

Other professional services

  1,916   - 

Total Mobile

  4,279   20,148 
         

Domain Services:

        

Wholesale

        

Domain Services

  46,991   45,964 

Value Added Services

  5,080   4,306 

Total Wholesale

  52,071   50,270 
         

Retail

  9,154   9,259 

Total Domain Services

  61,225   59,529 
         
  $70,875  $83,985 

 

During the  three months ended March 31, 2021 and the  three months ended March 31, 2020 no customer accounted for more than 10% of total revenue.

 

At March 31, 2021, one customer represented 49% of accounts receivables. 
 
The following is a summary of the Company’s cost of revenue from each significant revenue stream (Dollar amounts in thousands of U.S. dollars): 
 
  

Three Months Ended March 31,

 
  

2021

  

2020

 
         

Fiber Internet Services:

        

Fiber Internet Services

 $2,635  $1,716 
         

Mobile Services:

        

Retail mobile services

  1,055   9,857 

Mobile platform services

  58   - 

Other professional services

  1,666   - 

Total Mobile

  2,779   9,857 
         

Domain Services:

        

Wholesale

        

Domain Services

  35,773   36,469 

Value Added Services

  599   757 

Total Wholesale

  36,372   37,226 
         

Retail

  4,401   4,389 

Total Domain Services

  40,773   41,615 
         

Network Expenses:

        

Network, other costs

  3,238   2,416 

Network, depreciation and amortization costs

  3,937   3,231 

Network, impairment

  60   - 

Total Network Expenses

  7,235   5,647 
         
  $53,422  $58,835 
Contract Balances
 
The following table provides information about contract liabilities (deferred revenue) from contracts with customers. The Company accounts for contract assets and liabilities on a contract-by-contract basis, with each contract presented as either a net contract asset or a net contract liability accordingly.

 

Given that Company’s long-term contracts with customers are billed in advance of service, the Company’s contract liabilities relate to amounts recorded as deferred revenues. The Company does not have material streams of contracted revenue that have not been billed.

 

Deferred revenue primarily relates to the portion of the transaction price received in advance related to the unexpired term of domain name registrations and other domain related value-added services, on both a wholesale and retail basis, net of external commissions. To a lesser extent, deferred revenue also includes a portion of the transaction price received from mobile platform services, which is related to professional services. 

 

Significant changes in deferred revenue for the  three months ended March 31, 2021 were as follows (Dollar amounts in thousands of U.S. dollars): 

 

  March 31, 2021 
     
Balance, beginning of period $152,245 
Deferred revenue  66,981 
Recognized revenue  (61,632)
Balance, end of period $157,594 

 

Remaining Performance Obligations:

 

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

 

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

 

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

 

Professional service revenue related to 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 one to ten 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 $52.1 million and also amortized $48.0 million of contract costs. There was no impairment loss recognized in relation to the costs capitalized during the three months ended March 31, 2021. Amortization expense of deferred costs is primarily included in cost of revenue.

 

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 $111,066 
Deferral of costs  52,063 
Recognized costs  (47,952)
Balance, end of period $115,177 

 

 

 

 
12. Leases
 
We lease datacenters, corporate offices and fiber-optic cables under operating leases. The Company does not have any leases classified as finance leases.

 

Our leases have remaining lease terms of 1 year to 20 years, some of which may include options to extend the leases for up to 5 years, and some of which may include options to terminate the leases within 1 year.

 

The components of lease expense were as follows (Dollar amounts in thousands of U.S. dollars): 
 
  

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)

 $534  $547 

Short-term Lease Cost (leases with a total term of 12 months or less)

  50   244 

Variable Lease Cost

  176   128 

Total Lease Cost

 $760  $919 
 
 
Lease Cost is presented in general and administrative expenses and network expenses within our consolidated statements of operations and comprehensive income.
 
Information related to leases was as follows (Dollar amounts in thousands of U.S. dollars):
 
  

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)

 $551  $559 

Operating Lease - Operating Cash Flows (Liability Reduction)

 $472  $438 

New ROU Assets - Operating Leases

 $1,394  $875 

 

Supplemental balance sheet information related to leases: March 31, 2021  December 31, 2020 
Weighted Average Discount Rate  3.38%  4.03%
Weighted Average Remaining Lease Term 8.01 yrs  8.60 yrs 

 

Maturity of lease liability as of  March 31, 2021 (Dollar amounts in thousands of U.S. dollars):

 

  March 31, 2021 
Remaining of 2021 $1,724 
2022  2,349 
2023  2,287 
2024  1,623 
2025  1,078 
Thereafter  4,130 
Total future lease payments  13,191 
Less imputed interest  1,541 
Total $11,650 

 

Operating lease payments include payments under the non-cancellable term, without any additional amounts related to options to extend lease terms that are reasonably certain of being exercised.
 

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.

 

 

 
13. Segment Reporting: 

 

Reportable operating segments:

 

We are organized and managed based on three operating segments which are differentiated primarily by their services, the markets they serve and the regulatory environments in which they operate.  No operating segments have been aggregated to determine our reportable segments.

 

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

 $5,371  $4,279  $61,225  $-  $70,875 

Direct cost of revenues

  2,635   2,778   40,774   -   46,187 

Segment Gross Margin

  2,736   1,501   20,451   -   24,688 
                     

Adjusted EBITDA

 $(2,593) $4,478  $13,820  $(2,981) $12,724 

 

  

Fiber Internet Services

  

Mobile Services

  

Domain Services

  

Corporate

  

Consolidated Totals

 

For the Three Months Ended March 31, 2020

                    
                     

Net Revenues

 $4,308  $20,148  $59,529  $-  $83,985 

Direct cost of revenues

  1,716   9,857   41,615   -   53,188 

Segment Gross Margin

  2,592   10,291   17,914   -   30,797 
                     

Adjusted EBITDA

 $(1,062) $4,989  $11,547  $(2,793) $12,681 

 

 

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

 $12,724  $12,681 

Depreciation of property and equipment

  3,759   2,990 

Impairment of property and equipment

  60   - 

Amortization of intangible assets

  2,619   3,301 

Interest expense, net

  936   1,150 

Accretion of contingent consideration

  96   87 

Stock-based compensation

  1,022   801 

Unrealized loss (gain) on change in fair value of forward contracts

  166   348 

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

  67   (42)

Acquisition and other costs1

  767   111 
         

Income before provision for income taxes

 $3,232  $3,935 

 

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.

 

(b)           The following is a summary of the Company’s property and equipment by geographic region (Dollar amounts in thousands of US dollars): 
 
  March 31, 2021  December 31, 2020 
         
Canada $2,435  $2,521 
United States  127,371   114,968 
Europe  40   41 
  $129,846  $117,530 

 

(c)           The following is a summary of the Company’s amortizable intangible assets by geographic region (Dollar amounts in thousands of US dollars): 
 
  March 31, 2021  December 31, 2020 
         
Canada $2,135  $2,385 
United States  30,552   32,767 
  $32,687  $35,152 

 

(d)           The following is a summary of the Company’s deferred tax asset, net of valuation allowance, by geographic region (Dollar amounts in thousands of US dollars): 
 
  March 31, 2021  December 31, 2020 
         
Germany $188  $226 
  $188  $226 

 

 

(e)           Valuation and qualifying accounts (Dollar amounts in thousands of US dollars):
 

Allowance for doubtful accounts

 

Balance at beginning of period

  

Charged to costs and expenses

  

Write-offs during period

  

Balance at end of period

 
                 

Three Months Ended March 31, 2021

 $222  $-  $16  $206 

Twelve months ended December 31, 2020

 $131  $91  $-  $222 

 

 

 
14. Stockholders' Equity:

 

The following table summarizes stockholders' equity transactions for the