TUCOWS INC /PA/ Segments Disclosure

20. Segment Reporting: 

 

Reportable operating segments:

 

We are organized and managed based on three reportable 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.

 

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

 

 

 

 

Our segmented results include shared services allocations to the operating segments, including a profit margin, for Finance, Human Resources and other technical services. In addition, Wavelo charges Ting a subscriber based monthly charge service rendered. Financial impacts from these allocations and cross segment charges are eliminated as part of the consolidation.

 

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 Adjusted EBITDA (as defined below) as (i) a key measure of performance for each segment and (ii) to make decisions about the allocation of resources. Depreciation of property and equipment, amortization of intangible 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.

 

Our key measure of segment performance is Segment Adjusted EBITDA.

 

We calculate this as segment revenue together with recurring income earned on sale of transferred assets, less cost of revenue, network expenses and certain operating expenses attributable to each segment, such as sales and marketing, technical operations and development, general and administration expenses. Segment Adjusted EBITDA excludes unrealized gains (losses) on foreign exchange, stock-based compensation and transactions that are not indicative of ongoing performance, including acquisition and transition costs. Certain revenues and expenses are excluded from segment Adjusted 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.

 

The Company believes that Adjusted EBITDA is an important indicator 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. 

 

The Chief Operating Decision Maker ("CODM") uses Adjusted EBITDA to evaluate the overall recurring profitability of each operating segment after accounting for overhead costs. Adjusted EBITDA is evaluated by the CODM by comparing current period to historical and forecasted results and is used to inform strategic decisions over segment profitability, operational efficiency, pricing strategies, cost optimization, customer churn, competitor benchmarking and cash flow.

 

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 U.S. dollars): 

 

		Year Ended December 31, 2025
		Ting				Wavelo				Tucows Domain				Total Reportable Segments
Revenue from external customers		$	68,222			$	45,838			$	267,099			$	381,159
Intersegment revenue(1)			-				1,785				-				1,785
Total net revenues			68,222				47,623				267,099				382,944
Less:
Cost of revenue			24,486				1,111				182,984				208,581
Network, other cost(2)			9,009				9,416				7,134				25,559
Sales and marketing			21,064				10,197				15,147				46,408
Technical operations and development			1,937				7,721				7,787				17,445
General and administrative			19,652				4,219				5,973				29,844
Other segment items(3)			(1,678	)			(2,526	)			(601	)			(4,805	)
Segment Adjusted EBITDA		$	(6,248	)		$	17,485			$	48,675			$	59,912

 

		Year Ended December 31, 2024
		Ting				Wavelo				Tucows Domain				Total Reportable Segments
Revenue from external customers		$	59,732			$	39,003			$	254,639			$	353,374
Intersegment revenue(1)			-				858				-				858
Total net revenues			59,732				39,861				254,639				354,232
Less:
Cost of revenue			11,162				1,273				177,083				189,518
Network, other cost(2)			16,918				9,710				6,974				33,602
Sales and marketing			35,502				7,585				13,776				56,863
Technical operations and development			3,230				6,826				7,106				17,162
General and administrative			16,550				3,395				5,686				25,631
Other segment items(3)			(1,113	)			(2,734	)			(376	)			(4,223	)
Segment Adjusted EBITDA		$	(22,517	)		$	13,806			$	44,390			$	35,679

 

		Year Ended December 31, 2023
		Ting				Wavelo				Tucows Domain				Total Reportable Segments
Revenue from external customers		$	50,937			$	35,979			$	242,097			$	329,013
Intersegment revenue(1)			-				2,691				-				2,691
Total net revenues			50,937				38,670				242,097				331,704
Less:
Cost of revenue			12,727				2,626				169,414				184,767
Network, other cost(2)			17,872				9,649				6,123				33,644
Sales and marketing			44,823				7,012				13,586				65,421
Technical operations and development			3,792				8,124				6,371				18,287
General and administrative			16,567				3,080				4,576				24,223
Other segment items(3)			(693	)			(2,394	)			(596	)			(3,683	)
Segment Adjusted EBITDA		$	(44,151	)		$	10,573			$	42,623			$	9,045

 

(1) Intercompany revenues earned for provision of services on the ISOS and SM platforms between Wavelo and Ting are included in Wavelo's segment revenues for purposes of segment analysis, but are ultimately eliminated upon consolidation. 

(2) Network Costs in segment reports provided to the CODM include certain construction expenses for Ting, which are reported as Direct Costs of Revenue in the Consolidated Statements of Operations and Comprehensive Loss.

(3) Other segment items for each reportable segment includes other income, as well as adjustments to add back (deduct): gains and losses from unrealized foreign currency, stock-based compensation expense and acquisition and transition costs, which are included in other line items but are excluded from our definition of Segment Adjusted EBITDA.

 

The following table reconciles Segment Adjusted EBITDA for the period to Net loss before tax for the years ended December 31, 2025, 2024 and 2023. 

 

		Year ended December 31,
Reconciliation of Net loss to Segment Adjusted EBITDA		2025				2024				2023
(In Thousands of U.S. Dollars)
Segment Adjusted EBITDA		$	59,912			$	35,679			$	9,045
Reconciling items:
Corporate and other(1)			(9,314	)			(762	)			6,406
Depreciation of property and equipment			(41,580	)			(40,323	)			(36,431	)
Impairment of property and equipment			(11,533	)			(19,167	)			(4,822	)
Loss (gain) on disposition of property and equipment			5,882
Amortization of intangible assets			(4,667	)			(5,297	)			(10,829	)
Interest expense, net			(55,274	)			(51,275	)			(41,771	)
Loss on debt extinguishment			-				-				(14,680	)
Accretion of contingent liability			-				-				-
Stock-based compensation			(7,139	)			(7,021	)			(8,134	)
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities			391				167				62
Acquisition and other costs(2)			(3,988	)			(13,875	)			(1,916	)
Net loss before tax		$	(67,310	)		$	(101,874	)		$	(103,070	)

 

(1) Items that are centrally managed and not monitored by or reported to our CEO by segment, including retail mobile services, eliminations of intercompany transactions, portions of Finance and Human Resources that are centrally managed, Legal and Corporate IT.

(2) Acquisition and other costs represent transaction-related expenses and transitional expenses. Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments.

 

Revenue from sources outside of Canada and The United States of America comprises less than 10% of our total operating revenue.

 

(b)           The following is a summary of the Company’s property and equipment by geographic region (Dollar amounts in thousands of U.S. dollars): 

 

		December 31, 2025				December 31, 2024
Canada		$	797			$	897
United States			281,158				330,148
Europe			-				4
		$	281,955			$	331,049

 

(c)           The following is a summary of the Company’s amortizable intangible assets by geographic region (Dollar amounts in thousands of U.S. dollars): 

 

		December 31, 2025				December 31, 2024
Canada		$	695			$	1,258
United States			6,745				11,225
		$	7,440			$	12,483

 

Under ASC 326, the Company assesses the adequacy of its allowance for expected credit losses based on historical loss experience, current economic conditions and reasonable forecasts. Our evaluation considers the short-term nature of our receivables and the high credit quality of our customer base, which mitigates significant credit risk exposure. 

 

(d)          The following table summarizes our expected credit losses (Dollar amounts in thousands of U.S. dollars):

 

Expected credit losses		Balance at beginning of period				Charged to costs and expenses				Write-offs during period				Balance at end of period
Year Ended December 31, 2025		$	923			$	370			$	(34	)		$	1,259
Year Ended December 31, 2024		$	511			$	412			$	-			$	923