Note 13 - Segment Reporting

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

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 September 30, 2021
Net Revenues	$	6,672		$	8,492	$	60,729	$	-		$	75,893
Direct cost of revenues		3,653			3,634		42,253		-			49,540
Segment Gross Margin		3,019			4,858		18,476		-			26,353
Adjusted EBITDA	$	(4,358	)	$	7,648	$	12,024	$	(3,109	)	$	12,205

	Fiber Internet Services			Mobile Services		Domain Services		Corporate			Consolidated Totals
For the Three Months Ended September 30, 2020
Net Revenues	$	4,657		$	8,852	$	60,802	$	-		$	74,311
Direct cost of revenues		1,682			4,707		41,941		-			48,330
Segment Gross Margin		2,975			4,145		18,861		-			25,981
Adjusted EBITDA	$	(1,052	)	$	5,182	$	12,024	$	(2,884	)	$	13,270

	Fiber Internet Services			Mobile Services		Domain Services		Corporate			Consolidated Totals
For the Nine Months Ended September 30, 2021
Net Revenues	$	17,868		$	19,778	$	184,215	$	-		$	221,861
Direct cost of revenues		9,314			9,732		125,814		-			144,860
Segment Gross Margin		8,554			10,046		58,401		-			77,001
Adjusted EBITDA	$	(10,272	)	$	17,411	$	38,595	$	(9,651	)	$	36,083

	Fiber Internet Services			Mobile Services		Domain Services		Corporate			Consolidated Totals
For the Nine Months Ended September 30, 2020
Net Revenues	$	13,379		$	46,567	$	180,472	$	-		$	240,418
Direct cost of revenues		5,063			23,224		125,021		-			153,308
Segment Gross Margin		8,316			23,343		55,451		-			87,110
Adjusted EBITDA	$	(3,185	)	$	14,035	$	35,922	$	(8,648	)	$	38,124

Reconciliation of Adjusted EBITDA to Income before Provision for Income Taxes	Three Months Ended September 30,					Nine Months Ended September 30,
(In Thousands of US Dollars)	2021		2020			2021		2020
(unaudited)	(unaudited)		(unaudited)			(unaudited)		(unaudited)
Adjusted EBITDA	$	12,205	$	13,270		$	36,083	$	38,124
Depreciation of property and equipment		4,758		3,110			12,728		9,255
Impairment and loss on disposition of property and equipment		470		113			536		1,638
Amortization of intangible assets		2,288		2,645			7,253		8,776
Impairment of definite life intangible assets		-		-			-		1,431
Write-down on disposal of Ting Mobile customer assets		-		3,513			-		3,513
Interest expense, net		1,169		760			3,108		2,756
Accretion of contingent consideration		96		86			287		258
Stock-based compensation		1,126		1,016			3,357		2,664
Unrealized loss (gain) on change in fair value of forward contracts		249		(175	)		606		(263	)
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities		72		81			178		479
Acquisition and other costs1		901		565			2,034		1,520
Income before provision for income taxes	$	1,076	$	1,556		$	5,996	$	6,097

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): 

	September 30, 2021		December 31, 2020
Canada	$	2,117	$	2,521
United States		153,080		114,968
Europe		39		41
	$	155,236	$	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): 

	September 30, 2021		December 31, 2020
Canada	$	1,636	$	2,385
United States		26,486		32,767
	$	28,122	$	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): 

	September 30, 2021		December 31, 2020
Germany	$	153	$	226
	$	153	$	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
Nine Months Ended September 30, 2021	$	222	$	-	$	12	$	210
Twelve months ended December 31, 2020	$	131	$	91	$	-	$	222