TUCOWS INC /PA/ [TCX] Filings

10-Q 1 tcx20220331_10q.htm FORM 10-Q tcx20220331_10q.htm

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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, 2022

☐

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, 2022, there were 10,764,616 outstanding shares of common stock, no par value, of the registrant.

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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, 2022 and December 31, 2021	3

	Consolidated Statements of Operations and Comprehensive Income (unaudited) for the three months ended March 31, 2022 and 2021	4

	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2022 and 2021	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	41

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3.	Defaults Upon Senior Securities	43

Item 4.	Mine Safety Disclosures	43

Item 5.	Other Information	43

Item 6.	Exhibits	44

Signatures		45

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

Tucows®, EPAG®, Hover®, OpenSRS®, Platypus®, Ting®, eNom®, Roam®, Roam Mobility®, 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.

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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,*
	*2022*		*2021*

Assets

Current assets:
Cash and cash equivalents	$	6,201	$	9,105
Accounts receivable, net of allowance for doubtful accounts of $535 as of March 31, 2022 and $541 as of December 31, 2021		16,391		14,579
Contract asset (note 10)		3,283		778
Inventory		3,558		3,277
Prepaid expenses and deposits		23,221		20,986
Derivative instrument asset, current portion (note 5)		1,358		299
Deferred costs of fulfillment, current portion (note 11)		96,986		94,506
Income taxes recoverable		3,249		3,474
Total current assets		154,247		147,004

Deferred costs of fulfillment, long-term portion (note 11)		17,674		18,205
Derivative instrument asset, long-term portion (note 5)		459		278
Investments		2,012		2,012
Deferred tax asset		20		22
Property and equipment		191,456		172,662
Right of use operating lease asset		18,136		17,515
Contract costs		1,306		1,079
Intangible assets (note 6)		47,659		50,409
Goodwill (note 6)		130,410		130,410
Total assets	$	563,379	$	539,596


Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable	$	14,103	$	10,016
Accrued liabilities		16,351		15,240
Customer deposits		16,351		16,974
Derivative instrument liability, current portion (note 5)		-		125
Operating lease liability, current portion (note 12)		3,463		3,150
Deferred revenue, current portion (note 10)		128,413		124,116
Accreditation fees payable, current portion		882		882
Income taxes payable		307		102
Other current liabilities		2,974		3,078
Total current liabilities		182,844		173,683

Deferred revenue, long-term portion (note 10)		23,753		23,677
Accreditation fees payable, long-term portion		156		170
Operating lease liability, long-term portion (note 12)		12,220		11,853
Loan payable, long-term portion (note 7)		207,183		190,748
Other long-term liability (note 4)		-		1,804
Deferred tax liability		22,211		22,569

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; 10,762,581 shares issued and outstanding as of March 31, 2022 and 10,747,417 shares issued and outstanding as of December 31, 2021		29,655		28,515
Additional paid-in capital		3,530		2,764
Retained earnings		80,450		83,470
Accumulated other comprehensive income (note 5)		1,377		343
Total stockholders' equity		115,012		115,092
Total liabilities and stockholders' equity	$	563,379	$	539,596

Contingencies (note 18)

See accompanying notes to consolidated financial statements

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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,*
	*2022*			*2021*


Net revenues (note 10)	$	81,099		$	70,875

Cost of revenues (note 10)
Direct cost of revenues		49,421			46,187
Network, other costs		4,180			3,238
Network, depreciation of property and equipment		5,895			3,638
Network, amortization of intangible assets (note 6)		378			299
Network, impairment of property and equipment		27			60
Total cost of revenues		59,901			53,422

Gross profit		21,198			17,453

Expenses:
Sales and marketing		11,987			8,311
Technical operations and development		3,765			3,132
General and administrative		7,296			4,953
Depreciation of property and equipment		148			121
Loss on disposition of property and equipment		385			-
Amortization of intangible assets (note 6)		2,465			2,320
Loss (gain) on currency forward contracts (note 5)		-			(253	)
Total expenses		26,046			18,584

Income from operations		(4,848	)		(1,131	)

Other income (expenses):
Interest expense, net		(1,796	)		(936	)
Gain on sale of Ting customer assets, net (note 17)		4,752			5,395
Other expense, net		(50	)		(96	)
Total other income (expenses)		2,906			4,363

Income before provision for income taxes		(1,942	)		3,232

Provision for income taxes (note 8)		1,078			1,083

Net income for the period		(3,020	)		2,149

Other comprehensive income, net of tax
Unrealized income (loss) on hedging activities (note 5)		968			368
Net amount reclassified to earnings (note 5)		66			(834	)
Other comprehensive income net of tax expense (recovery) of $329 and ($140) for the three months ended March 31, 2022 and March 31, 2021 (note 5)		1,034			(466	)

Comprehensive income, net of tax for the period	$	(1,986	)	$	1,683


Basic earnings per common share (note 9)	$	(0.28	)	$	0.20

Shares used in computing basic earnings per common share (note 9)		10,754,758			10,617,807

Diluted earnings per common share (note 9)	$	(0.28	)	$	0.20

Shares used in computing diluted earnings per common share (note 9)		10,754,758			10,796,762

See accompanying notes to consolidated financial statements

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Tucows Inc.

Consolidated Statements of Cash Flows

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

(unaudited)

	*For the Three Months Ended March 31,*
	*2022*			*2021*
Cash provided by:
Operating activities:
Net income for the period	$	(3,020	)	$	2,149
Items not involving cash:
Depreciation of property and equipment		6,043			3,759
Impairment of property and equipment		27			60
Amortization of debt discount and issuance costs		120			67
Amortization of intangible assets		2,843			2,619
Net amortization contract costs		(227	)		(7	)
Accretion of contingent consideration		98			96
Deferred income taxes (recovery)		(686	)		(220	)
Excess tax benefits on share-based compensation expense		(52	)		(172	)
Net Right of use operating assets/Operating lease liability		59			55
Loss on disposal of domain names		2			1
Loss (gain) on change in the fair value of forward contracts		-			166
Stock-based compensation		1,391			1,022
Change in non-cash operating working capital:
Accounts receivable		(1,812	)		(328	)
Contract assets		(2,505	)		-
Inventory		(281	)		(442	)
Prepaid expenses and deposits		(2,235	)		2,266
Deferred costs of fulfillment		(1,949	)		(4,111	)
Income taxes recoverable		482			(689	)
Accounts payable		2,267			1,451
Accrued liabilities		1,111			793
Customer deposits		(623	)		125
Deferred revenue		4,368			5,349
Accreditation fees payable		(14	)		77
Net cash provided by operating activities		5,407			14,086

Financing activities:
Proceeds received on exercise of stock options		515			229
Payment of tax obligations resulting from net exercise of stock options		-			(218	)
Contingent consideration for acquisition of Cedar Holdings Group		(2,000	)		-
Proceeds received on loan payable		16,500			-
Payment of loan payable costs		(177	)		-
Net cash (used in) provided by financing activities		14,838			11

Investing activities:
Additions to property and equipment		(23,054	)		(13,944	)
Acquisition of intangible assets		(95	)		(154	)
Net cash used in investing activities		(23,149	)		(14,098	)

Increase (decrease) in cash and cash equivalents		(2,904	)		(1	)

Cash and cash equivalents, beginning of period		9,105			8,311
Cash and cash equivalents, end of period	$	6,201		$	8,310



Supplemental cash flow information:
Interest paid	$	1,683		$	949
Income taxes paid, net	$	896		$	2,381
Supplementary disclosure of non-cash investing and financing activities:
Property and equipment acquired during the period not yet paid for	$	1,909		$	3,320

See accompanying notes to consolidated financial statements

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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 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. 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, 2022 and the results of operations and cash flows for the interim periods ended March 31, 2022 and 2021. 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, 2021 included in Tucows' 2021 Annual Report on Form 10-K filed with the SEC on March 1, 2022 (the “2021 Annual Report”). There have been no material changes to our significant accounting policies and estimates during the three months ended March 31, 2022 as compared to the significant accounting policies and estimates described in our 2021 Annual Report, except as described in 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 Second 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 Second Amended 2019 Credit Facility 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 October 1, 2021, the Company acquired the domain registry related assets of UNR Corp., UNR Inc. and Uni Naming and Registry Ltd. (each a seller and collectively "UNR"). For more information, see Note 3 - Acquisitions of the 2021 Annual Report.

On November 8, 2021, the Company acquired 100% of Simply Bits, LLC via an Agreement and Plan of Merger with one of our wholly owned subsidiaries. For more information, see Note 3 - Acquisitions of the 2021 Annual Report.

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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 Second Amended 2019 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, 2022 and December 31, 2021, 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, 2022, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $13.7 million, of which $13.7 million met the requirements of ASC Topic 815 and were designated as hedges.

As of December 31, 2021, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $25.2 million, of which $25.2 million met the requirements of ASC Topic 815 and were designated as hedges.

As of March 31, 2022, 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 2022	$	6,453		1.2801	$	163
July - September 2022		3,779		1.2801		95
October - December 2022		3,476		1.2801		86
	$	13,708		1.2801	$	344

As of March 31, 2022 and December 31, 2021, 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, 2022 Fair Value Asset (Liability)*		*As of December 31, 2021 Fair Value Asset (Liability)*
Foreign Currency forward contracts designated as cash flow hedges (net)	Derivative instruments	$	344	$	62
Interest rate swap contract designated as a cash flow hedge (net)	Derivative instruments		1,473		390
Total foreign currency and interest swap forward contracts (net)	Derivative instruments	$	1,817	$	452

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Movement in accumulated other comprehensive income (AOCI) balance for the three months ended March 31, 2022 (Dollar amounts in thousands of U.S. dollars)

	*Gains and losses on cash flow hedges*		*Tax impact*			*Total AOCI*
Opening AOCI balance - December 31, 2021	$	450	$	(107	)	$	343
Other comprehensive income (loss) before reclassifications		1,276		(308	)		968
Amount reclassified from AOCI		87		(21	)		66
Other comprehensive income (loss) for the three months ended March 31, 2022		1,363		(329	)		1,034

Ending AOCI Balance - March 31, 2022	$	1,813	$	(436	)	$	1,377

Effects of derivative instruments on income and other comprehensive income (OCI) for the three months ended March 31, 2022 and 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	$	(58	)
Foreign currency forward contracts for the three months ended March 31, 2022	$	1,056		Cost of revenues	$	(12	)

Interest rate swap contract for the three months ended March 31, 2022	$	(88	)	Interest expense, net	$	(17	)

				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	)

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:	*2022*		*2021*

Gain (loss) on settlement	$	-	$	420
Gain (loss) on change in fair value				(167	)
	$	-	$	253

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 $130.4 million as of March 31, 2022 and $130.4 million as of December 31, 2021. The Company's goodwill relates 83% ($107.7 million) to its Domain Services operating segment, 17% ($22.7 million) to its Fiber Internet Services operating segment and nil to its Platform 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, 2022 and 2021.

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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, 2022 and March 31, 2021, 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, 2021	$	11,156	$	1,135		$	5,010		$	28,634		$	3,392		$	1,082		$	50,409
Acquisition of customer relationships		-		-			-			95			-			-			95
Additions to/(disposals from) domain portfolio, net		-		(2	)		-			-			-			-			(2	)
Amortization expense		-		-			(518	)		(2,145	)		(155	)		(25	)		(2,843	)
Balances, March 31, 2022	$	11,156	$	1,133		$	4,492		$	26,584		$	3,237		$	1,057		$	47,659

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 2022	$	8,218
2023		10,153
2024		6,531
2025		4,393
2026		2,668
Thereafter		3,407
Total	$	35,370

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 (the “Amended 2019 Credit Facility”) with Royal Bank (“RBC”), as administrative agent, and lenders party thereto (collectively with RBC, the “Lenders”) under which the Company had access to an aggregate of up to $240 million in funds, which consisted of $180 million guaranteed credit facility and a $60 million accordion facility. The Amended 2019 Credit Facility replaced the Company’s 2017 Amended Credit Facility.

In connection with the Amended 2019 Credit Facility, the Company incurred $0.3 million of fees paid to the Lenders and $0.2 million of legal fees related to the debt issuance. Of these fees, $0.4 million are debt issuance costs, which 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 and $0.1 million were recorded in General and administrative expenses for the year ended December 31, 2019.

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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.

Second Amended 2019 Credit Facility

On October 26, 2021, the Company entered into a Second Amended and Restated Senior Secured Credit Agreement (the “Second Amended 2019 Credit Agreement”) with the Lenders and Toronto-Dominion Bank (collectively the “New Lenders”) to, among other things, increase the existing revolving credit facility from $180 million to $240 million. The Second Amended Credit Agreement provides the Company with access to an aggregate of $240 million in committed funds. The Second Amended Credit Agreement also provides for two additional interest rate tiers if the Company exceeds a 3.50x Total Funded Debt to Adjusted EBITDA Ratio.

In connection with the Second Amended 2019 Credit Facility, the Company incurred $0.3 million of fees related to the debt issuance, which 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.

Credit Facility Terms

The Second Amended 2019 Credit Facility is revolving with interest only payments with no scheduled repayments during the term.

The Second Amended 2019 Credit Facility contains customary representations and warranties, affirmative and negative covenants, and events of default. The Second Amended 2019 Credit Facility requires that the Company to comply with the following financial covenants at all times, which are to be calculated on a rolling four quarter basis: (i) maximum Total Funded Debt to Adjusted EBITDA Ratio of 4.50:1.00 until March 31, 2023 and 4.00:1.00 thereafter; and (ii) minimum Interest Coverage Ratio of 3.00:1.00. During the three months ended March 31, 2022, and the three months ended March 31, 2021 the Company was in compliance with these covenants. The Second Amended 2019 Credit Facility agreement definition of Adjusted EBITDA which is used to calculate the Company's compliance with covenants was amended in March of 2022 to align to the definition of Adjusted EBITDA used in Note 13 – Segment Accounting

Borrowings under the Second 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 2.00*			*Greater than or equal to 2.00 and less than 2.50*			*Greater than or equal to 2.50 and less than 3.00*			*Greater than or equal to 3.00 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 Bankers’ Acceptance or U.S. dollar borrowings based on LIBOR (Margin)		1.75	%		2.25	%		2.50	%		2.75	%		3.00	%		3.25	%
Canadian or U.S. dollar borrowings based on Prime Rate or U.S. dollar borrowings based on Base Rate (Margin)		0.50	%		1.00	%		1.25	%		1.50	%		1.75	%		2.00	%
Standby fees		0.35	%		0.45	%		0.50	%		0.55	%		0.60	%		0.65	%

The following table summarizes the Company’s borrowings under the credit facilities (Dollar amounts in thousands of U.S. dollars):

	*March 31, 2022*			*December 31, 2021*

Revolver	$	207,900		$	191,400
Less: unamortized debt discount and issuance costs		(717	)		(652	)
Total loan payable		207,183			190,748
Less: loan payable, current portion		-			-
Loan payable, long-term portion	$	207,183		$	190,748

The following table summarizes our scheduled principal repayments as of March 31, 2022 (Dollar amounts in thousands of U.S. dollars):

Remainder of 2022	$	-
2023		207,900
	$	207,900

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 ended March 31, 2022, the Company recorded an income tax expense of$1.1 million on net loss before income taxes of $1.9 million, using an estimated effective tax rate for the fiscal year ending December 31, 2022 (“Fiscal 2022”) adjusted for certain minimum state taxes. Our effective tax rate for the three months ended March 31, 2022 is also adversely impacted by a change in the geographical mix of income and current tax on foreign earnings.

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Comparatively, for the three months ended March 31, 2021, the Company 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 stock based compensation. Our effective tax rate for the three months ended March 31, 2021 is also impacted by discrete adjustments resulting from finalization of prior period tax filings, foreign exchange and mark-to-market adjustments.

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,*
	*2022*			*2021*

Numerator for basic and diluted earnings per common share:
Net income for the period	$	(3,020	)	$	2,149

Denominator for basic and diluted earnings per common share:
Basic weighted average number of common shares outstanding		10,754,758			10,617,807
Effect of outstanding stock options		-			178,955
Diluted weighted average number of shares outstanding		10,754,758			10,796,762

Basic earnings per common share	$	(0.28	)	$	0.20

Diluted earnings per common share	$	(0.28	)	$	0.20

For the three months ended March 31, 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. For the three months ended March 31, 2021 4,004 outstanding options 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.

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 CSP solutions and professional services in our Platform 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. Certain revenues are disclosed under the Corporate category as they are considered none-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.

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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.

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)

Platform Services

The Company generates Platform Services revenues by providing billing and provisioning platform services to Communication Service Providers ("CSPs") to whom we also provide other professional services.

Platform service agreements contain both platform services and professional services. Platform services offer a variety of solutions that support CSPs, including subscription and billing management, network orchestration and provisioning, and individual developer tools. Consideration under platform service arrangements includes both a variable component that changes each month depending on the number of subscribers hosted on the platform, as well as fixed payments and credits. Variable consideration sometimes includes minimum contractual payments, which are considered substantive minimum commitments. The Company uses the variable allocation exception to allocate variable consideration received to the services which the variable consideration relates to. Platform services represent a single promise to provide continuous access (i.e. a stand-ready performance obligation) to the platform. As each month of providing access to the platform is substantially the same and the customer simultaneously receives and consumes the benefits as access is provided, the performance obligation is comprised of a series of distinct service periods. Professional services provided under platform service arrangements can include implementation, training, consulting or software development/modification services. Revenues related to professional services are distinct from the other promises in the contract(s) and are recognized as the related services are performed. Consideration is allocated between the platform services and professional services performance obligations by estimating the standalone selling price (“SSP”) of each performance obligation. The Company estimates the SSP of professional services based on observable standalone sales. The SSP of platform services is derived using the residual approach by estimating the total contract consideration and subtracting the SSP of professional services. Total contract consideration is estimated at contract inception, considering any constraints that may apply and updating the estimates as new information becomes available.

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

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(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,*
	*2022*		*2021*
Fiber Internet Services:
Fiber Internet Services	$	9,788	$	5,082

Platform Services:
Platform Services		6,097		638
Other Professional Services		750		-
Total Platform Services		6,847		638

Domain Services:
Wholesale
Domain Services		46,836		46,991
Value Added Services		5,649		5,080
Total Wholesale		52,485		52,071

Retail		9,061		9,154
Total Domain Services		61,546		61,225

Corporate:
Mobile services and eliminations		2,918		3,930

	$	81,099	$	70,875

During the three months ended March 31, 2022 and the three months ended March 31, 2021 no customer accounted for more than 10% of total revenue.

At March 31, 2022, one customer represented 46% of accounts receivables.

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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,*
	*2022*		*2021*

Fiber Internet Services:
Fiber Internet Services	$	4,038	$	2,609

Platform Services:
Platform Services		185		85
Other Professional Services		776		-
Total Platform Services		961		85

Domain Services:
Wholesale
Domain Services		36,397		35,773
Value Added Services		656		599
Total Wholesale		37,053		36,372

Retail		4,759		4,401
Total Domain Services		41,812		40,773

Corporate:
Mobile services and eliminations		2,610		2,720

Network Expenses:
Network, other costs		4,180		3,238
Network, depreciation of property and equipment		5,895		3,638
Network, amortization of intangible assets		378		299
Network, impairment of property and equipment		27		60
Total Network Expenses		10,480		7,235

	$	59,901	$	53,422

Contract Balances

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

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

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

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Significant changes in deferred revenue for the three months ended March 31, 2022 were as follows (Dollar amounts in thousands of U.S. dollars):

Deferred revenue:

	*March 31, 2022*

Balance, beginning of period	$	147,793
Deferred revenue		65,315
Recognized revenue		(60,942	)
Balance, end of period	$	152,166

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

Contract assets:

	*March 31, 2022*

Balance, beginning of period	$	778
Consideration recognized as revenue		5,677
Transferred to receivables		(3,172	)
Balance, end of period	$	3,283

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 platform services may be deferred over the period not exceeding the term of the contract.

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 platform services arrangements. For the three months ended March 31, 2022, the Company deferred $45.1 million and amortized $43.2 million of contract costs. There was no impairment loss recognized in relation to the costs capitalized during the three months ended March 31, 2022. Amortization expense of deferred costs is included in cost of revenue.

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The breakdown of the movement in the deferred costs of fulfillment balance for the three months ended March 31, 2022 is as follows (Dollar amounts in thousands of U.S. dollars).

	*March 31, 2022*

Balance, beginning of period	$	112,711
Deferral of costs		45,132
Recognized costs		(43,183	)
Balance, end of period	$	114,660

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 March 31,*
	*2022*		*2021*
Operating Lease Cost (leases with a total term greater than 12 months)	$	849	$	534
Short-term Lease Cost (leases with a total term of 12 months or less)		11		50
Variable Lease Cost		103		176
Total Lease Cost	$	963	$	760

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 March 31,*
Supplemental cashflow information:	*2022*		*2021*
Operating Lease - Operating Cash Flows (Fixed Payments)	$	936	$	551
Operating Lease - Operating Cash Flows (Liability Reduction)	$	832	$	472
New ROU Assets - Operating Leases	$	1,378	$	1,394

Supplemental balance sheet information related to leases:	*March 31, 2022*			*December 31, 2021*
Weighted Average Discount Rate		3.11	%		3.09	%
Weighted Average Remaining Lease Term	7.36 yrs			7.74 yrs

Maturity of lease liability as of March 31, 2022 (Dollar amounts in thousands of U.S. dollars):

	*March 31, 2022*
Remaining of 2022	$	2,854
2023		3,818
2024		2,883
2025		2,055
2026		1,501
Thereafter		4,245
Total future lease payments		17,356
Less imputed interest		1,673
Total	$	15,683

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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, 2022, 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 2022, the Company completed a reorganization of its reporting structure into three operating and reportable segments: Fiber Internet Services, Platform Services and Domain Services. Previously, the Company disclosed the three operating and reportable segments: Fiber Internet Services, Mobile Services and Domain Services. The retail portion of the previously disclosed Mobile Services, including the earn-out of the sale of legacy subscribers are now included within Corporate and ISP platform revenues and related results previously included within the Fiber Internet Services are now included within Platform Services.

The change to our reportable operating segments was the result of a shift in our business and management structures that was completed during the first quarter of 2022. The operations supporting what was previously known as our Mobile Services segment have become increasingly operationally distinct between our mobile retail services and our platform services. As a result, commencing in the first quarter of 2022, our Chief Executive Officer ("CEO"), who is also our chief operating decision maker, reviews the operating results of Fiber Internet Services, Platform Services and Domains Services as three distinct segments in order to make key operating decisions as well as evaluate segment performance. Certain revenues and expenses disclosed under the Corporate category are excluded from segment EBITDA results as they are centrally managed and not monitored by or reported to our CEO by segment, including Mobile Retail Services, eliminations of intercompany transactions, portions of Finance and Human Resources that are centrally managed, Legal and Corporate IT.

Our reportable operating segments and their principal activities consist of the following:

1. Fiber Internet Services - This segment derives revenue from the retail high speed Internet access to individuals and small businesses primarily through the Ting website. Revenues are generated in the United States.

2. Platform Services – This segment derives revenue from platform and other professional services related to communication service providers, including Mobile Network Operators and Internet Service Providers, and are primarily generated in the United States.

3. 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.

Our segmented results include shared services allocations, including a profit margin, from Corporate for Finance, Human Resources and other technical services, to the operating units. In addition, Platform Services charges Fiber Internet Services a subscriber based monthly charge services rendered. Financial impacts from these allocations and cross segment charges are eliminated as part of the Corporate results.

Key measure of segment performance:

The CEO, as the chief operating decision maker, regularly reviews the operations and performance by segment. The CEO reviews segment revenue, gross margin and adjusted EBITDA (as defined below) as (i) key measures of performance for each segment and (ii) to make decisions about the allocation of resources. Sales and marketing expenses, technical operations and development expenses, general and administrative expenses, depreciation of property and equipment, amortization of intangibles assets, impairment of indefinite life intangible assets, gain on currency forward contracts and other expense net are organized along functional lines and are not included in the measurement of segment profitability. Total assets and total liabilities are centrally managed and are not reviewed at the segment level by the CEO. The Company follows the same accounting policies for the segments as those described in “Note 2 – Significant Accounting Policies”, and “Note 10 – Revenue”.

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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 network expenses and certain operating expenses attributable to each segment, such as sales and marketing, technical operations and development, general and administration expenses but excludes gains and losses from unrealized foreign currency, stock-based compensation and transactions that are one-time in nature and not indicative of on-going performance, including acquisition and transition costs. Certain revenues and expenses disclosed under the Corporate category are excluded from segment EBITDA results as they are centrally managed and not monitored by or reported to our CEO by segment, including Mobile Retail Services, eliminations of intercompany transactions, portions of Finance and Human Resources that are centrally managed, Legal and Corporate IT.

Our 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):

Reconciliation of Adjusted EBITDA to Income before Provision for Income Taxes	*Three Months Ended March 31,*
(In Thousands of US Dollars)	*2022*			*2021*
(unaudited)	(unaudited)			(unaudited)

Adjusted EBITDA	$	11,311		$	12,724
Depreciation of property and equipment		6,043			3,759
Impairment and loss on disposition of property and equipment		412			60
Amortization of intangible assets		2,843			2,619
Interest expense, net		1,796			936
Accretion of contingent consideration		98			96
Stock-based compensation		1,391			1,022
Unrealized loss (gain) on change in fair value of forward contracts		-			166
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities		53			67
Acquisition and other costs¹		617			767

Income before provision for income taxes	$	(1,942	)	$	3,232

¹ Acquisition and other costs represent transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses, primarily related to our acquisitions, including Simply Bits in November 2021. Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments.

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	*Fiber Internet Services*			*Platform Services*		*Domain Services*		*Corporate*		*Consolidated Totals*
For the Three Months Ended March 31, 2022

Net Revenues	$	9,788		$	6,847	$	61,546	$	2,918	$	81,099
Direct cost of revenues		4,038			961		41,812		2,610		49,421
Segment Gross Margin		5,750			5,886		19,734		308		31,678

Adjusted EBITDA	$	(4,321	)	$	2,047	$	11,774	$	1,811	$	11,311

	*Fiber Internet Services*		*Platform Services*		*Domain Services*		*Corporate*		*Consolidated Totals*
For the Three Months Ended March 31, 2021

Net Revenues	$	5,082	$	638	$	61,225	$	3,930	$	70,875
Direct cost of revenues		2,609		85		40,773		2,720		46,187
Segment Gross Margin		2,473		553		20,452		1,210		24,688

Adjusted EBITDA	$	(3,927)	$	(1,080)	$	13,196	$	4,535	$	12,724

(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, 2022*		*December 31, 2021*

Canada	$	1,721	$	1,994
United States		189,698		170,630
Europe		37		38
	$	191,456	$	172,662

(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, 2022*		*December 31, 2021*

Canada	$	3,899	$	1,386
United States		31,471		36,732
	$	35,370	$	38,118

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

Allowance for doubtful accounts	*Balance at beginning of period*		*Charged to costs and expenses*		*Write-offs during period*		*Balance at end of period*

Three Months Ended March 31, 2022	$	541	$	-	$	6	$	535
Twelve months ended December 31, 2021	$	222	$	319	$	-	$	541

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14. Stockholders' Equity:

The following table summarizes stockholders' equity transactions for the three-month period ended (Dollar amounts in thousands of U.S. dollars):

												*Accumulated*
						*Additional*						*other*		*Total*
	*Common stock*					*paid in*			*Retained*			*comprehensive*		*stockholders'*
	*Number*			*Amount*		*capital*			*earnings*			*income (loss)*		*equity*

Balances, December 31, 2021		10,747,417		$	28,515	$	2,764		$	83,470		$	343	$	115,092

Exercise of stock options		11,592			757		(242	)		-			-		515
Shares deducted from exercise of stock options for payment of withholding taxes and exercise consideration		(1,860	)		-		-			-			-		-
Stock-based compensation		5,432			383		1,008			-			-		1,391
Net income		-			-		-			(3,020	)		-		(3,020	)
Other comprehensive income (loss)		-			-		-			-			1,034		1,034
Balances, March 31, 2022		10,762,581		$	29,655	$	3,530		$	80,450		$	1,377	$	115,012

2022 Stock Buyback Program

On February 10, 2022, the Company announced that its Board approved a stock buyback program to repurchase up to $40 million of its common stock in the open market. Purchases will be made exclusively through the facilities of the NASDAQ Capital Market. The stock buyback program commenced on February 11, 2022 and is expected to terminate on or before February 10, 2023. For the three months ended March 31, 2022, the Company did not repurchase shares under this program.

2021 Stock Buyback Program

On February 9, 2021, the Company announced that its Board approved a stock buyback program to repurchase up to $40 million of its common stock in the open market. Purchases will be made exclusively through the facilities of the NASDAQ Capital Market. The stock buyback program commenced on February 10, 2021 and was terminated on February 9, 2022. For the three months ended March 31, 2022, and the three months ended March 31, 2021 the Company did not repurchase shares under this program.

2020 Stock Buyback Program

On February 12, 2020, the Company announced that its Board had approved a stock buyback program to repurchase up to $40 million of its common stock in the open market. The $40 million buyback program commenced on February 13, 2020 and terminated on February 12, 2021. For the three months ended March 31, 2021, the Company did not repurchase shares under this program.

15. Share-based Payments:

Stock options

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. The assumptions presented in the table below represent the weighted average of the applicable assumption used to value stock options at their grant date. The Company calculates expected volatility based on historical volatility of the Company's common shares. The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on historical exercise experience. The Company evaluated historical exercise behavior when determining the expected term assumptions. The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The Company determines the expected dividend yield percentage by dividing the expected annual dividend by the market price of Tucows Inc. common shares at the date of grant.

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Details of stock option transactions for the three months ended March 31, 2022 and March 31, 2021 are as follows (Dollar amounts in thousands of U.S. dollars, except per share amounts):

	*Three Months Ended March 31, 2022*					*Three Months Ended March 31, 2021*
	*Number of shares*			*Weighted average exercise price per share*		*Number of shares*			*Weighted average exercise price per share*

Outstanding, beginning of period		901,651		$	56.44		845,020		$	55.31
Granted		7,000			71.43		-			-
Exercised		(11,592	)		56.63		(28,337	)		47.03
Forfeited		(12,568	)		86.20		(8,064	)		60.72
Expired		(1,237	)		62.51		-			-
Outstanding, end of period		883,254			64.37		808,619			55.55
Options exercisable, end of period		405,846		$	56.40		378,258		$	49.35

As of March 31, 2022, the exercise prices, weighted average remaining contractual life of outstanding options and intrinsic values were as follows (Dollar amounts in thousands of U.S. dollars, except per share amounts):

	Options outstanding								Options exercisable
Exercise price	Number outstanding		Weighted average exercise price per share		Weighted average remaining contractual life (years)		Aggregate intrinsic value		Number exercisable		Weighted average exercise price per share		Weighted average remaining contractual life (years)		Aggregate intrinsic value

$19.95 - $19.95		7,000	$	19.95		0.9	$	338		7,000	$	19.95		0.9	$	338
$21.10 - $21.10		20,892		21.10		0.8		986		20,892		21.10		0.8		986
$46.90 - $48.00		11,000		47.35		3.6		231		6,000		47.17		2.5		127
$51.82 - $59.98		219,671		55.59		2.4		2,793		209,396		55.60		2.2		2,660
$60.01 - $68.41		335,716		62.03		4.3		2,108		149,858		63.13		4.0		777
$70.13 - $79.51		272,475		78.47		6.0		-		12,700		72.61		5.7		-
$80.61 - $82.07		16,500		81.27		6.5		-		-		-		-		-
		883,254	$	64.37		4.3	$	6,456		405,846	$	56.40		2.9	$	4,888

Total unrecognized compensation cost relating to unvested stock options at March 31, 2022, prior to the consideration of expected forfeitures, is approximately $8.3 million and is expected to be recognized over a weighted average period of 2.7 years.

The Company recorded stock-based compensation of $1.4 million for the three months ended March 31, 2022, and $1.0 million for the three months ended March 31, 2021, respectively.

The Company has not capitalized any stock-based compensation expense as part of the cost of an asset.

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16. Fair Value Measurement:

For financial assets and liabilities recorded in our financial statements at fair value we utilize a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets