ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains, in addition to historical information, forward-looking statements by us with regard to our expectations as to financial results and other aspects of our business that involve risks and uncertainties and may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “should,” “anticipate,” “believe,” “plan,” “estimate,” “expect” and “intend,” and other similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this report include statements regarding, among other things: the competition we expect to encounter as our business develops and competes in a broader range of Internet services; the Company's foreign currency requirements, specifically for the Canadian dollar; Mobile Services Platform, and fixed Internet access subscriber growth and retention rates; our belief regarding the underlying platform for our domain services, our expectation regarding the trend of sales of domain names and advertising; our expectations regarding portfolio revenue, our belief that, by increasing the number of services we offer, we will be able to generate higher revenues; our expectation regarding litigation; the potential impact of current and pending claims on our business; our valuations of certain deferred tax assets; our expectation to collect our outstanding receivables, net of our allowance for doubtful accounts; our expectation regarding fluctuations in certain expense and cost categories; our expectations regarding our unrecognized tax; our expectations regarding cash from operations to fund our business; the impact of cancellations of or amendments to market development fund programs under which we receive funds, our expectation regarding our ability to manage realized gains/losses from foreign currency contracts; the impact of the COVID-19 outbreak on our business, operations and financial performance; and general business conditions and economic uncertainty. These statements are based on management’s current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements. Many factors affect our ability to achieve our objectives and to successfully develop and commercialize our services including:
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Our ability to continue to generate sufficient working capital to meet our operating requirements;
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Our ability to service our debt commitments;
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Our ability to maintain a good working relationship with our vendors and customers;
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The ability of vendors to continue to supply our needs;
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Actions by our competitors;
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Our ability to attract and retain qualified personnel in our business;
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Our ability to effectively manage our business;
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The effects of any material impairment of our goodwill or other indefinite-lived intangible assets;
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Our ability to obtain and maintain approvals from regulatory authorities on regulatory issues;
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Our ability to invest in the build-out of fiber networks into selected towns and cities to provide Internet access services to residential and commercial customers while maintaining the development and sales of our established services;
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Adverse tax consequences such as those related to changes in tax laws or tax rates or their interpretations, including with respect to the impact of the Tax Cuts and Jobs Act of 2017;
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The application of judgment in determining our global provision for income taxes, deferred tax assets or liabilities or other tax liabilities given the ultimate tax determination is uncertain;
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Our ability to effectively integrate acquisitions;
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Our ability to monitor, assess and respond to the rapidly changing impacts of the COVID-19 pandemic. Our current assessment of expected impacts has been included below as part of the Opportunities, Challenges & Risks section.
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Our ability to collect anticipated payments from DISH in connection with the 10-year payment stream that is a function of the margin generated by the transferred subscribers over a 10-year period pursuant to the terms of the DISH Purchase Agreement;
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Pending or new litigation; and
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Factors set forth below in Part II - Other Information under the caption "Item 1A Risk Factors" in this Quarterly Report on Form 10-Q related to our Mobile Services Enabler ("MSE") platform and business.
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Factors set forth under the caption “Item 1A Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 3, 2021 (the “2020 Annual Report”).
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As previously disclosed the under the caption “Item 1A Risk Factors” in our 2020 Annual Report, data protection regulations may impose legal obligations on us that we cannot meet or that conflict with our ICANN contractual requirements.
This list of factors that may affect our future performance and financial and competitive position and the accuracy of forward-looking statements is illustrative, but it is by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All forward-looking statements included in this document are based on information available to us as of the date of this document, and we assume no obligation to update these cautionary statements or any forward-looking statements, except as required by law. These statements are not guarantees of future performance.
We qualify all the forward-looking statements contained in this Quarterly Report on Form 10-Q by the foregoing cautionary statements.
OVERVIEW
Our mission is to provide simple useful services that help people unlock the power of the Internet.
We accomplish this by reducing the complexity of our customers’ experience as they access the Internet (at home or on the go) and while using Internet services such as domain name registration, email and other Internet services. 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. We are now organized, managed and report our financial results as three segments, Fiber Internet Services, Mobile Services and Domain Services which are differentiated primarily by their services, the markets they serve and the regulatory environments in which they operate.
Our management regularly reviews our operating results on a consolidated basis, principally to make decisions about how we utilize our resources and to measure our consolidated operating performance. To assist us in forecasting growth and to help us monitor the effectiveness of our operational strategies, our management regularly reviews revenues, operating results and performance for each of our service offerings in order to gain more depth and understanding of the key business metrics driving our business. 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. Accordingly, effective January 1, 2021 we now report Fiber Internet Services, Mobile Services and Domain Services revenue separately. Additionally, we have adjusted segment reporting to include adjusted EBITDA as a key measure of segment performance in addition to our existing key measure of segment performance, gross profit.
For the three months ended March 31, 2021 and March 31, 2020, we reported revenue of $70.9 million and $84.0 million, respectively.
Fiber Internet Services
Fiber Internet Services includes the provision of fixed high-speed Internet access services and other revenues, including billing solutions to small ISPs.
The Company also derives revenue from the sale of fixed high-speed Internet access, Ting Internet, in select towns throughout the United States, with further expansion underway to both new and existing Ting towns. Our primary sales channel of Ting Internet is through the Ting website. The primary focus of Ting Internet is to provide reliable Gigabit Internet services to consumer and business customers. Revenues from Ting Internet are all generated in the U.S. and are provided on a monthly basis. Ting Internet services have no fixed contract terms.
Mobile Services
Mobile Services includes the provision of Mobile Services Enabler ("MSE") platform and professional services, as well as the sale of retail mobile phone and retail telephone services for a small subset of retail customers.
On August 1 2020, the Company and its wholly owned Subsidiary Ting, Inc. entered into an Asset Purchase Agreement (the "DISH Purchase Agreement”) with DISH pursuant to which Ting sold substantially all of its legacy retail mobile customer relationships, and mobile handset and SIM inventory to DISH and granted DISH the right to use and an option to purchase the Ting brand. The transferred assets under the DISH Purchase Agreement did not include the technology platforms and related intellectual property and infrastructure necessary to enable or support the mobile customers. The Company retained the assets used to provide MSE platform and other professional services to DISH, as discussed below. Revenues from our retail mobile services, MSE platform and professional services are all generated in the U.S. and are provided on a monthly basis. Our MSE customer agreements have set contract lengths with the underlying Mobile Virtual Network Operator ("MVNO"). As part of the DISH Purchase Agreement, as a form of consideration for the sale of the customer relationships, the Company receives a payout on the margin associated with the legacy customer base sold to DISH. This has been classified as Other Income and not considered revenue in the current period.
Domain Services
Domain Services includes wholesale and retail domain name registration services, as well as value added services derived through our OpenSRS, eNom, Ascio, EPAG and Hover brands. We earn revenues primarily from the registration fees charged to resellers in connection with new, renewed and transferred domain name registrations. In addition, we earn revenues from the sale of retail domain name registration and email services to individuals and small businesses. Domain Services revenues are attributed to the country in which the contract originates, which is primarily in Canada and the U.S for OpenSRS and eNom brands. Ascio domain services contracts and EPAG agreements primarily originate in Europe.
Our primary distribution channel is a global network of approximately 36,000 resellers that operate in over 150 countries and who typically provide their customers, the end-users of Internet-based services, with solutions for establishing and maintaining an online presence. Our primary focus is serving the needs of this network of resellers by providing the broadest portfolio of generic top-level domain (“gTLD”) and the country code top-level domain options and related services, a white-label platform that facilitates the provisioning and management of domain names, a powerful Application Program Interface, easy-to-use interfaces, comprehensive management and reporting tools, and proactive and attentive customer service. Our services are integral to the solutions that our resellers deliver to their customers. We provide “second tier” support to our resellers by email, chat and phone in the event resellers experience issues or problems with our services. In addition, our Network Operating Center proactively monitors all services and network infrastructure to address deficiencies before customer services are impacted.
We believe that the underlying platforms for our services are among the most mature, reliable and functional reseller-oriented provisioning and management platforms in our industry, and we continue to refine, evolve and improve these services for both resellers and end-users. Our business model is characterized primarily by non-refundable, up-front payments, which lead to recurring revenue and positive operating cash flow.
Wholesale, primarily branded as OpenSRS, eNom, EPAG and Ascio, derives revenue from its domain service and from providing value-added services. The OpenSRS, eNom, EPAG and Ascio domain services manage 25.7 million domain names under the Tucows, eNom, EPAG and Ascio ICANN registrar accreditations and for other registrars under their own accreditations, which has increased by 1.9 million domain names since March 31, 2020. The increase is driven by increased registrations experienced by our brands during COVID-19, as more businesses established an online presence, offset by the continued erosion of registrations related to non-core customers from our eNom brand.
Value-Added Services include hosted email which provides email delivery and webmail access to millions of mailboxes, Internet security services, WHOIS privacy, publishing tools and other value-added services. All of these services are made available to end-users through a network of 36,000 web hosts, ISPs, and other resellers around the world. In addition, we also derive revenue by monetizing domain names which are near the end of their lifecycle through advertising or auction sale.
Retail, primarily the Hover and eNom portfolio of websites, including eNom, eNom Central and Bulkregister, derive revenues from the sale of domain name registration, email services to individuals and small businesses. Retail also includes our Personal Names Service – based on over 36,000 surname domains – that allows roughly two-thirds of Americans to purchase a surname based email address. The retail segment now includes the sale of the rights to its portfolio of surname domains used in connection with our Realnames email service, however the Company expects surname portfolio revenue to materially decline through Fiscal 2021 and thereafter. Retail also includes our Exact Hosting Service, that provides Linux hosting services for websites of individuals and small businesses.
KEY BUSINESS METRICS AND NON-GAAP MEASURES
We regularly review a number of business metrics, including the following key metrics and non-GAAP measures, to assist us in evaluating our business, measure the performance of our business model, identify trends impacting our business, determine resource allocations, formulate financial projections and make strategic business decisions. The following tables set forth the key business metrics which we believe are the primary indicators of our performance for the periods presented:
Adjusted EBITDA
Tucows reports all financial information in accordance with United States generally accepted accounting principles (“GAAP”). Along with this information, to assist financial statement users in an assessment of our historical performance, we typically disclose and discuss a non-GAAP financial measure, adjusted EBITDA, on investor conference calls and related events that exclude certain non-cash and other charges as we believe that the non-GAAP information enhances investors’ overall understanding of our financial performance. Please see discussion of adjusted EBITDA in the Results of Operations section below.
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Ting Internet
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March 31,
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2021
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2020
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(in '000's)
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Ting Internet subscribers under management
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17
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12
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Ting Internet serviceable addresses (1)
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65
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45
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(1)
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Defined as premises to which Ting has the capability to provide a customer connection in a service area.
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Domain Services
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For the Three Months Ended March 31,(1)
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2021
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2020
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(in 000's)
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Total new, renewed and transferred-in domain name registrations provisioned
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4,817
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4,756
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(1)
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For a discussion of these period-to-period changes in the domains provisioned and domains under management and how they impacted our financial results see the Net Revenues discussion below.
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Domain Services
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March 31,
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2021
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2020
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(in 000's)
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Registered using Registrar Accreditation belonging to the Tucows Group
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19,787
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19,145
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Registered using Registrar Accreditation belonging to Resellers
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5,996
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4,750
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Total domain names under management
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25,783
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23,895
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OPPORTUNITIES, CHALLENGES AND RISKS
Our revenue is primarily realized in U.S. dollars and a major portion of our operating expenses are paid in Canadian dollars. Fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar may have a material effect on our business, financial condition and results from operations. In particular, we may be adversely affected by a significant weakening of the U.S. dollar against the Canadian dollar on a quarterly and an annual basis. Our policy with respect to foreign currency exposure is to manage our financial exposure to certain foreign exchange fluctuations with the objective of neutralizing some or all of the impact of foreign currency exchange movements by entering into foreign exchange forward contracts to mitigate the exchange risk on a portion of our Canadian dollar exposure. We may not always enter into such forward contracts and such contracts may not always be available and economical for us. Additionally, the forward rates established by the contracts may be less advantageous than the market rate upon settlement.
Fiber Internet Services
As an ISP, we have invested and expect to continue to invest in new fiber to the home (“FTTH”) deployments in select markets in the United States. The investments are a reflection of our ongoing efforts to build FTTH network via public-private partnerships in communities we identify as having strong, unmet demand for FTTH services. Given the significant upfront build and operational investments for these FTTH deployments, there is risk that future technological and regulatory changes as well as competitive responses from incumbent local providers, may result in us not fully recovering these investments.
The communications industry continues to compete on the basis of network reach and performance, types of services and devices offered, and price.
Mobile Services
The prior year sale of substantially all of the Company’s mobile customer base and pivot from MVNO to MSE will be a strategic shift for our Mobile Services segment. At the start, DISH will be our sole customer and will represent 100% of our MSE platform revenues until such time that we are able to scale our services to other customers interested in our enablement services. With all our MSE platform and professional services revenues concentrated with one customer, we are exposed to significant risk if we are unable to maintain this customer relationship or establish new relationships in the future. Additionally, our revenues as an MSE are directly tied to the subscriber volumes of DISH's MVNO or MNO networks, so our profitability is contingent on the ability of DISH to continue to add subscribers onto our platform.
Additionally, as described above, the Company will be entitled to a 10-year payment stream that is a function of the margin generated by the transferred subscribers over the 10-year period. This consideration structure may not prove to be successful or profitable in the long-term to us if the existing subscriber base churns at an above average rate upon acquisition by DISH. Additionally, given DISH controls the revenues and costs incurred associated with the acquired subscribers, there could arise a situation where profitability for the subscriber base is diminished either by lower price points or cost inflation
As part of the transactions contemplated by the DISH Purchase agreement, the Company has retained a small number of customer accounts associated with one MNO agreement that was not reassigned to DISH at time of sale. We continue to be subject to the minimum revenue commitments previously agreed to with this excluded MNO agreement. The Company will be able to continue adding customers under the excluded MNO network working with DISH in order to meet the commitment. However, with no direct ability to change customer pricing or renegotiate contract costs or terms, the Company may be unable to meet the minimum commitments with this MNO partner and could incur significant and recurring penalties until such a time that the contract is complete. These penalties would negatively impact our operational performance and financial results if enforced by the MNO.
Domain Services
The increased competition in the market for Internet services in recent years, which we expect will continue to intensify in the short and long term, poses a material risk for us. As new registrars are introduced, existing competitors expand service offerings and competitors offer price discounts to gain market share, we face pricing pressure, which can adversely impact our revenues and profitability. To address these risks, we have focused on leveraging the scalability of our infrastructure and our ability to provide proactive and attentive customer service to aggressively compete to attract new customers and to maintain existing customers.
Substantially all of our Domain Services revenue is derived from domain name registrations and related value-added services from wholesale and retail customers using our provisioning and management platforms. The market for wholesale registrar services is both price sensitive and competitive and is evolving with the introduction of new gTLDs, particularly for large volume customers, such as large web hosting companies and owners of large portfolios of domain names. We have a relatively limited ability to increase the pricing of domain name registrations without negatively impacting our ability to maintain or grow our customer base. Growth in our Domain Services revenue is dependent upon our ability to continue to attract and retain customers by maintaining consistent domain name registration and value-added service renewal rates and to grow our customer relationships through refining, evolving and improving our provisioning platforms and customer service for both resellers and end-users. In addition, we also generate revenue through pay-per-click advertising and through the OpenSRS Domain Expiry Stream. The revenue associated with names sales and advertising has recently experienced flat to declining trends due to the uncertainty around the implementation of ICANN’s New gTLD Program, lower traffic and advertising yields in the marketplace, which we expect to continue.
From time-to-time certain of our vendors provide us with market development funds to expand or maintain the market position for their services. Any decision by these vendors to cancel or amend these programs for any reason may result in payments in future periods not being commensurate with what we have achieved during past periods.
Critical Accounting Policies
The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. There have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 7 of our 2020 Annual Report. For further information on our critical accounting policies and estimates, see Note 3 – Recent Accounting Pronouncements to the consolidated financial statements of the Company in Part I, Item 1 in this Quarterly Report on Form 10-Q.
Current COVID-19 Response
Our Employees
Tucows is a global business and has long encouraged a culture of remote work even prior to this global pandemic. Since the onset of this pandemic, all employees who could conceivably work from home were and continue to be encouraged to do so. Tucows continues to actively and strongly encourage its workforce to heed travel and all other emergency advisories, including social distancing and where appropriate, self-isolation. We expect our work from home policy to remain in effect until emergency state and governmental declarations where we have physical offices have ended and we believe the risk of community spread of the disease has subsided. Given our experience with remote work prior to COVID-19, we have not and do not expect to have productivity issues while the overwhelming majority of our office-based workforce is dispersed. For the small group of employees who are unable work from home during this time, including our order fulfillment and Fiber installation teams, many of whom work in the field, they are encouraged to practice social distancing and to continue to follow hygiene best practices and safety protocols as outlined by the Centers for Disease Control and Prevention. In the prior year, the Ting Internet team established an install solution for our employees and customers that minimizes risks associated with person-to-person contact and they continue to effectively deploy this install solution currently.
Our Customers
We recognize the important role we play within the Internet space and are committed to continue providing quality service during the COVID-19 outbreak. Across our three segments, Domain Name Services and our Mobile Services segments do not rely on in-person interaction or the supply chain in the same way physical products and services do. We continue to provide uninterrupted services for all Domains and Mobile related services. Our Fiber Internet business does not have bandwidth caps or other such limitations. Likewise, our networks are built with the capacity to accommodate future needs. To help our customers remain connected at home during this time, we upgraded all our lower-tier fiber customers to symmetrical gigabit access at no charge. Any additional traffic from our customers working from home has not had and is not expected to have any negative impact on connectivity. As discussed above, our modified safe-install solution was implemented in early May 2020. With this service limitation, new customer acquisition will remain slower than pre-pandemic levels of growth and installation. Even with an install solution that minimizes risks, customers may be unwilling to have service personnel visit their homes or offices.
Our Community
Tucows believes the Internet is essential infrastructure and an immensely powerful tool, especially in times of crises where coordination is essential. From an early point in the current global crisis, it was clear to us that we were going to need to do something new and different in how we responded to COVID-19 related domain registrations. We developed a strategy of compliance activities that encompassed three major components: (i) identification, (ii) assessment for harm, and (iii) stakeholder engagement. In order to provide Internet access and assistance to residents of cities and towns that are part of the Ting Fiber network, we have set up free, fiber-fed, drive-up Wi-Fi hotspots. These hotspots enable those with no home Internet access, or insufficient access, to access critical services like online learning and telehealth services, work remotely, check in on and access vital health, government and other services and generally access information. These hotspots will remain in operation as long as they are needed and as long as it is safe and prudent to do so. We have not experienced any material resource constraints nor do we foresee requiring any material expenditures to continue to implement our business continuity plans described above.
Current and expected COVID-19 Impacts
Financial & Operational Impacts
Further to the below discussion within this Quarterly Report around the financial condition and results of operations for the current period financial results, the current impact from COVID-19 has been limited so far in 2021. Over the past year, we've monitored the situation and it's impacts on our businesses but have ultimately seen trends stabilize, with some hints at recovery in U.S. markets due to large-scale vaccination programs. Management continues to assess the impact regularly but expects limited impact through the remainder of 2021, should the COVID-19 pandemic persist. On a segment basis, our current assessment is as follows:
Fiber Internet Services:
As discussed above, the Ting Internet team established a smart-install solution at the start of the pandemic. This smart-install solution is faster and more efficient than our existing process, all while protecting the health and safety of our employees and customers alike. Although new customer installations initially slowed at the start of the pandemic, we are now seeing returned growth in both subscribers under management as well as serviceable addresses relative to the prior quarter.
Mobile Services:
The Company now only retains a small subset of customers to which it continues to provide retail mobile services. COVID-19 has impacted the demand for our Mobile Services as customer usage patterns have changed, which has had a corresponding negative impact on our revenues. However, we do not expect the impact to significantly worsen over the coming months or year as we have seen usage stabilize during the prior periods. We also expect that seasonally warmer weather for the second fiscal quarter of 2021 and continued vaccine roll-out across the U.S. will slowly help to normalize customer usage patterns. Our new MSE platform and professional services businesses are completely online and do not rely on physical storefronts to attract or service customers’ needs. We are fully prepared to continue providing uninterrupted Mobile related enablement services to our MVNO customers. We have not and do not expect a negative COVID-19 impact on our new MSE platform and professional services revenue, nor do we expect any impact to substantially worsen over the coming months.
Domain Services:
Domain Services are foundational to the functioning of the Internet. Services like individual and wholesale domain names, email and hosting do not rely on in-person interaction or the supply chain in the same way physical products and services do. We have not experienced any negative COVID-19 related impacts, either financially or operationally for Domains related services, across our OpenSRS, eNom, Ascio, EPAG & Hover brands. As more businesses faced the reality of prolonged physical shutdown and moved to establish an online presence, we have seen growth in this segment over the course of the pandemic, primarily driven by large volume resellers in our OpenSRS brand where total domains under management increased by 0.5 million since December 31, 2020. This growth rate in domains under management was driven by the pandemic, and may not be sustained in the future as domain registrations plateau. Our results of operations for the current period financial results are in line with management’s expectation for the period given product, customer mix and current brand trajectories. We will continue to monitor the impact but do not foresee any negative financial or operational impacts associated with this segment.
Liquidity & Financial Resource Impacts
For a complete assessment of our liquidity and covenant positions please reference the relevant discussions within this Quarterly Report. We have experienced no significant change to our liquidity position or credit risk as a result of the financial and operational impacts related to COVID-19, as discussed above. Our cost or access to funding sources has not changed and is not reasonably likely to change in the near future as a result of the pandemic. Our sources and uses of cash have not been materially impacted and there is no known material uncertainty about our ongoing ability meet covenants or repayment terms of our credit agreements at this time.
Internal Controls over Financial Reporting
Tucows has long encouraged a culture of remote work even prior to COVID-19. Our financial reporting systems and our internal controls over financial reporting and disclosure controls and procedures are already adapted for a remote work environment. There have been no changes during the current period that, as a result of COVID-19, would affect our ability to maintain these systems and controls.
COVID-19 Related Assistance & Support
Currently, Tucows has not received any form of financial or resource related assistance from any government or local authority. There do exist programs in the regions in which we operate that are designed to support corporations like Tucows during this time, primarily in the form employee wage subsidization. Tucows will continue to review the applicability of these programs but does not expect to seek any assistance.
Accounting Policy Impacts
Over the past year of monitoring the COVID-19 pandemic and assessing the impacts on our business as discussed above, Tucows does not anticipate a material impairment with respect to goodwill, intangible assets, long-lived assets, or right of use assets. We will continue to monitor the impacts closely as the situation continues to evolve and will approach the situation with cautious optimism about economic recovery resulting from widespread vaccination programs and will be mindful of any emerging risks as they arise. We do not foresee any changes in accounting judgements in relation to COVID-19 that will have a material impact on our financial statements.
RESULTS OF OPERATIONS FOR THE three months ended March 31, 2021 AS COMPARED TO THE three months ended March 31, 2020
NET REVENUES
Fiber Internet Services
Fiber Internet Services derive revenues from providing Ting Internet to individuals and small businesses in select cities. In addition, we provide billing, provisioning and customer care software solutions to ISPs through our Platypus billing software. Ting Internet access 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.
Ting Internet 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 access customers is computed based on the customer’s activation date. Since consideration is collected before the service period, revenue is initially deferred and recognized as the Company performs its obligation to provide Internet access within each reporting period. 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 until 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.
Mobile Services
Retail Mobile Services
Ting Mobile wireless usage contracts grant customers access to standard talk, text and data mobile services. Ting Mobile contracts are billed based on the customer's selected rate plan, which can either be usage based or an unlimited plan. All rate plan options are charged to customers on a postpaid, monthly basis at the end of their billing cycle. As discussed previously, in the prior year the Company sold substantially all of its retail mobile customer relationships, and mobile handset and SIM inventory to DISH and granted the right to use and option to purchase the Ting brand. The Company only retains a small subset of customers to which it continues to provide retail mobile services. All future revenues associated with Retail Mobile Services stream will only be for this subset of customers retained by Ting, Inc.
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 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 are recognized when title and risk of loss is transferred to the customer and shipment has occurred. Incentive marketing credits given to customers are recorded as a reduction of revenue.
As a form of consideration for the sale of the customer relationships, the Company receives a payout on the margin associated with the legacy customer base sold to DISH, over a period of 10 years. This has been classified as Other Income and not considered revenue in the current period
Mobile Platform Services
Tucows' MSE platform provides network access, provisioning and billing services for MVNOs. These platform fees are billed to our MVNO customers monthly, on a postpaid basis. The fees are based on the volume of their subscribers utilizing the platform during a given month. The Company recognizes revenue over this new revenue stream as the Company satisfies its obligations to provide MSE services on a monthly basis. For any bundled professional services where collection is collected before the service period as part of MSE Platform Revenues, the professional services revenue is initially deferred and recognized only as the Company performs its obligation to provide professional services.
Other Professional Services
This revenue stream includes any other professional services, including transitional services, earned in connection with Tucows' new MSE business. These are billed to our customers monthly at set and established rates for services provided in period. The Company recognizes revenue over this new revenue stream as the Company satisfies its obligations to provide professional services.
Domain Services
Wholesale - 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.
Historically, our wholesale domain service has constituted the largest portion of our business and encompasses all of our services as an accredited registrar related to the registration, renewal, transfer and management of domain names. In addition, this service fuels other revenue categories as it often is the initial service for which a reseller will engage us, enabling us to follow on with other services and allowing us to add to our portfolio by purchasing names registered through us upon their expiration. Domain services will continue to be the largest portion of our business and will further fuel our ability to sell add-on services.
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.
Wholesale – Value-Added Services
We derive revenue from domain related value-added services like digital certifications, WHOIS privacy and hosted email and by providing 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.
We also derive revenue from other value-added services, which primarily consists of proceeds from the OpenSRS, eNom and Ascio domain expiry streams.
Retail
We derive revenues mainly from Hover and eNom’s retail properties through the sale of retail domain name registration and email services to individuals and small businesses. The Company also provides Linux hosting services for websites through its Exact Hosting brand. The retail segment now includes the sale of the rights to its portfolio of surname domains used in connection with our Realnames email service, however the Company expects surname portfolio revenue to materially decline through Fiscal 2021 and thereafter.
The following table presents our net revenues, by revenue source (Dollar amounts in thousands of U.S. dollars):
|
(Dollar amounts in thousands of U.S. dollars)
|
|
For the 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
|
|
|
(Decrease) increase over prior period
|
|
$
|
(13,110
|
)
|
|
|
|
|
|
(Decrease) increase - percentage
|
|
|
(16
|
)%
|
|
|
|
|
The following table presents our revenues, by revenue source, as a percentage of total revenues (Dollar amounts in thousands of U.S. dollars):
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiber Internet Services:
|
|
|
|
|
|
|
|
|
|
Fiber Internet Services
|
|
|
8
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Network Access Services:
|
|
|
|
|
|
|
|
|
|
Mobile Services
|
|
|
|
|
|
|
|
|
|
Retail mobile services
|
|
|
3
|
%
|
|
|
24
|
%
|
|
Mobile platform services
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Other professional services
|
|
|
3
|
%
|
|
|
0
|
%
|
|
Total Mobile
|
|
|
6
|
%
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Domain Services:
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
|
|
|
|
|
|
|
Domain Services
|
|
|
66
|
%
|
|
|
55
|
%
|
|
Value Added Services
|
|
|
7
|
%
|
|
|
6
|
%
|
|
Total Wholesale
|
|
|
73
|
%
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
13
|
%
|
|
|
10
|
%
|
|
Total Domain Services
|
|
|
86
|
%
|
|
|
71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
Total net revenues for the three months ended March 31, 2021 decreased by $13.1 million, or 16%, to $70.9 million from $84.0 million when compared to the three months ended March 31, 2020. The three-month decrease in revenue was primarily driven by $15.9 million of reduced revenues attributable to our Mobile Services segment that was impacted by both the sale of the majority of the customer base of Ting Mobile to DISH Wireless and the shutdown of Roam Mobility brands in late Fiscal 2020. When compared to the three months ended March 31, 2020, the Mobile Services segment in the current period looks very different as a result of our shift from MVNO to MSE. As part of the DISH Purchase Agreement, as a form of consideration for the sale of the customer relationships, the Company receives a payout on the margin associated with the legacy customer base sold to DISH over the 10-year term of the agreement. This has been classified as Other Income and not considered revenue in the current period. This decrease in overall revenues is offset with increases from both Domain Services and Fiber Internet Services of $1.7 million and $1.1 million, respectively. For Domain Services this is reflective of continued wholesale registration growth as a result of the COVID-19 pandemic creating the need for an online presence, and for Fiber Internet Services this is a result of the attraction of additional customers to Ting Internet from the continued buildout of our Fiber network footprint across the United States.
Deferred revenue from domain name registrations and other Mobile and Internet services at March 31, 2021 increased by $5.4 million to $157.6 million from $152.2 million at December 31, 2020. This increase was primarily driven by Domain Services, accounting for $4.8 million of the increase which is due to the increase in current period billings for domain name registration and service renewals. Our Mobile Services segment followed, driving $0.5 million of the increase to deferred revenue due to increased billings for bundled professional services offered in connection with our MSE business. Fiber Internet Services accounted for less than $0.1 million of the increase.
No customer accounted for more than 10% of total revenue during the three months ended March 31, 2021 or the three months ended March 31, 2020. DISH accounted for 49% of total accounts receivable as at March 31, 2021 and 59% of total accounts receivable as at December 31, 2020. Though a significant portion of the Company’s domain services revenues are prepaid by our customers, where the Company does collect receivables, significant management judgment is required at the time revenue is recorded to assess whether the collection of the resulting receivables is reasonably assured. On an ongoing basis, we assess the ability of our customers to make required payments. Based on this assessment, we expect the carrying amount of our outstanding receivables, net of allowance for doubtful accounts, to be fully collected.
Fiber Internet Services
Revenues from Ting Internet and billing solutions generated $5.4 million in revenue during the three months ended March 31, 2021, up $1.1 million or 26% compared to the three months ended March 31, 2020. This growth is driven by subscriber growth across our Fiber network relative to the three months ended March 31, 2020. As of March 31, 2021, Ting Internet had access to 65,000 serviceable addresses and 17,000 active subscribers under its management compared to having access to 45,000 serviceable addresses and 12,000 active subscribers under its management as of March 31, 2020. These figures include the increase in serviceable addresses and subscribers attributable to the acquisition of Cedar Holdings Group, Incorporated ("Cedar") in January 2020.
Mobile Services
Retail Mobile Services
Net revenues from Retail Mobile Services for the three months ended March 31, 2021 decreased by $18.1 million or 90% to $2.0 million as compared to the three months ended March 31, 2020. This decrease is a result of the significant changes to our Mobile Services segment that occurred during Fiscal 2020 as we transitioned from MVNO to MSE. These changes include both the shutdown of the Roam Mobility brands in the second quarter of 2020 followed by the sale of substantially all of the Ting Mobile customer base on August 1, 2020 to DISH. In addition to these changes, subscriber churn and reduced usage related to the COVID-19 pandemic has also contributed to lower revenues relative to the three months ended March 31, 2020. Ting Mobile accounts for $17.0 million of this decrease (of which $1.6 million is reduced device revenues and $15.4 million relates to service revenues), followed by Roam Mobility at $1.1 million of the total decrease. The revenues earned from Retail Mobile Services for three months ended March 31, 2021 is only reflective of the mobile telephony services and device revenues associated with the small group of customers retained by the Company from the sale of historically larger Ting Mobile customer base to DISH. As mentioned above, the payout the Company receives from the aforementioned sale has been classified as Other Income and not considered revenue in the current period.
Mobile Platform Services
Net revenues from Mobile Platform Services for the three months ended March 31, 2021 increased to $0.3 million as compared to the three months ended March 31, 2020. This increase is a result of new MSE business created as a result of the DISH Purchase Agreement in the prior year. No such comparable revenue stream existed for the three months ended March 31, 2020. Tucows' MSE platform provides network access, provisioning and billing services for MVNOs, of which DISH is currently our sole customer.
Other Professional Services
Net revenues from Other Professional Services for the three months ended March 31, 2021 increased to $1.9 million as compared to the three months ended March 31, 2020. This increase is a result of new MSE business created as a result of the DISH Purchase Agreement in the prior year. No such comparable revenue stream existed for the three months ended March 31, 2020. Tucows' professional services include IT system development and other transitional services including sales, marketing, customer support, order fulfillment, and data analytics for MVNOs, of which DISH is currently our sole customer.
Domain Services
Wholesale - Domain Services
During the three months ended March 31, 2021, Wholesale domain services revenue increased by $1.0 million or 2% to $47.0 million, when compared to the three months ended March 31, 2020. Increases from Wholesale domain registration of $2.1 million from OpenSRS, EPAG, and Ascio brands driven by COVID-19 registration growth were offset by decreases of $1.1 million from the eNom brands, which continues to see a decline in registrations by non-core customers relative to the three months ended March 31, 2020.
Total domains that were managed under the OpenSRS, eNom, EPAG, and Ascio domain services increased by 1.9 million domain names to 25.8 million as of March 31, 2021, when compared to 23.9 million at March 31, 2020. The increase is a driven by the continued growth in registrations over this period as a result of the COVID-19 pandemic, as discussed above.
Wholesale - Value Added Services
During the three months ended March 31, 2021, value-added services revenue increased by $0.8 million to $5.1 million compared to the three months ended March 31, 2020. The increase was primarily driven by increased expiry revenue of $0.9 million from both OpenSRS and eNom domain expiry streams. This increase was offset by other small decreases in Digital Certificates, Email and Other revenues of $0.1 million.
Retail
During the three months ended March 31, 2021, retail domain services revenue decreased by $0.1 million or 1% to $9.2 million compared to the three months ended March 31, 2020. The was driven by decreased revenues related to Realnames email service and related surname portfolio sales of $0.1 million and decreased Exact Hosting revenues of $0.1 million. These increases were offset by a small increase in retail domain name registrations of $0.1 million. The Company expects all Realnames surname portfolio related sales to materially decline in Fiscal 2021 and thereafter.
COST OF REVENUES
Fiber Internet Services
Cost of revenues primarily includes the costs for provisioning high speed Internet access, which is comprised of network access fees paid to third-parties to use their network, leased circuit costs to directly support enterprise customers, the personnel and related expenses (net of capitalization) related to the physical planning, design, construction and build out of the physical Fiber network and as well as personnel and related expenses (net of capitalization) related to the installation, repair, maintenance and overall field service delivery of the Fiber business. Hardware costs include the cost of equipment sold to end customers, including routers, ONTs, and IPTV products, and any inventory adjustments on this inventory. Other costs include field vehicle expenses, small sundry equipment and supplies consumed in building the Fiber network and fees paid to third-party service providers primarily for printing services in connection with billing services to ISPs.
Mobile Services
Retail Mobile Services
Cost of revenues for Retail Mobile Services includes the costs of provisioning mobile services, which is primarily our customers' voice, messaging, data usage provided by our Network Operator, and the costs of providing mobile phone hardware, which is the cost of mobile phone devices and SIM cards sold to our customers, order fulfillment related expenses, and inventory write-downs.
Mobile Platform Services
Cost of revenues, if any, to provide the MSE Platform services including network access, provisioning and billing services for MVNOs.
Other Professional Services
Cost of revenues to provide professional services, including transitional services, to our MVNO customers to help support their businesses. This includes any personnel and contractor fees for any client service resources retained by the Company. Only a subset of the Company's employee base provides professional services to our MVNO customers. This cost reflects that group of resources.
Domain Services
Wholesale - Domain Services
Cost of revenues for domain registrations represents the amortization of registry and accreditation fees on a basis consistent with the recognition of revenues from our customers, namely rateably over the term of provision of the service. Registry fees, the primary component of cost of revenues, are paid in full when the domain is registered, and are initially recorded as prepaid domain registry fees. This accounting treatment reasonably approximates a recognition pattern that corresponds with the provision of the services during the period. Market development funds that do not represent a payment for distinct goods or services provided by the Company, and thus do not meet the criteria for revenue recognition under ASU 2014-09, are reflected as cost of goods sold and are recognized as earned.
Wholesale - Value-Added Services
Costs of revenues for value-added services include licensing and royalty costs related to the provisioning of certain components of related to hosted email and fees paid to third-party hosting services. Fees payable for trust certificates are amortized on a basis consistent with the provision of service, generally one year, while email hosting fees and monthly printing fees are included in cost of revenues in the month they are incurred.
Retail
Costs of revenues for our provision and management of Internet services through our retail sites, Hover.com and the eNom branded sites, include the amortization of registry fees on a basis consistent with the recognition of revenues from our customers, namely rateably over the term of provision of the service. Registry fees, the primary component of cost of revenues, are paid in full when the domain is registered, and are recorded as prepaid domain registry fees and are expensed rateably over the renewal term. Costs of revenues for our surname portfolio represent the amortization of registry fees for domains added to our portfolio over the renewal period, which is generally one year, the value attributed under intangible assets to any domain name sold and any impairment charges that may arise from our assessment of our domain name intangible assets.
Network expenses
Network expenses include personnel and related expenses related to the network operations, IT infrastructure and supply chain teams that support our various business segments. It also includes network depreciation and amortization, communication and productivity tool costs, and equipment maintenance costs. Communication and productivity tool costs includes collaboration, customer support, bandwidth, co-location and provisioning costs we incur to support the supply of all our services.
The following table presents our cost of revenues, by revenue source:
|
(Dollar amounts in thousands of U.S. dollars)
|
|
For the 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
|
|
|
|
-
|
|
|
|
|
|
7,235
|
|
|
|
5,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
53,422
|
|
|
$
|
58,835
|
|
|
(Decrease) increase over prior period
|
|
$
|
(5,413
|
)
|
|
|
|
|
|
(Decrease) increase - percentage
|
|
|
-9
|
%
|
|
|
|
|
The following table presents our cost of revenues, as a percentage of total cost of revenues for the periods presented:
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiber Internet Services:
|
|
|
|
|
|
|
|
|
|
Fiber Internet Services
|
|
|
5
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile Services:
|
|
|
|
|
|
|
|
|
|
Retail mobile services
|
|
|
2
|
%
|
|
|
17
|
%
|
|
Mobile platform services
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Other professional services
|
|
|
3
|
%
|
|
|
0
|
%
|
|
Total Mobile
|
|
|
5
|
%
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Domain Services:
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
|
|
|
|
|
|
|
Domain Services
|
|
|
68
|
%
|
|
|
63
|
%
|
|
Value Added Services
|
|
|
1
|
%
|
|
|
1
|
%
|
|
Total Wholesale
|
|
|
69
|
%
|
|
|
64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
8
|
%
|
|
|
7
|
%
|
|
Total Domain Services
|
|
|
77
|
%
|
|
|
71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Network Expenses:
|
|
|
|
|
|
|
|
|
|
Network, other costs
|
|
|
6
|
%
|
|
|
4
|
%
|
|
Network, depreciation and amortization costs
|
|
|
7
|
%
|
|
|
5
|
%
|
|
Network, impairment
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
13
|
%
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
Total cost of revenues for the three months ended March 31, 2021, decreased by $5.4 million, or 9%, to $53.4 million from $58.8 million in the three months ended March 31, 2020. The three-month decrease in cost of revenues was primarily driven by $7.1 million of reduced costs attributable to our Mobile Services segment. As discussed above in the Net Revenue section, our Mobile Services segment was impacted by both the sale of the majority of the customer base of Ting Mobile to DISH Wireless and the shutdown of Roam Mobility brands in late Fiscal 2020. When compared to the three months ended March 31, 2020, the Mobile Services segment in the current period looks very different as a result of our shift from MVNO to MSE. Both these factors contribute to the three months ended March 31, 2021 having significantly lower costs. Additionally, further decreases in Domain Services costs of $0.8 million driven by registry cost rebates earned in connection with strong performance and additions to domains under management as a result of the COVID-19 pandemic. This decrease in overall cost of revenues is offset with increases from Fiber Internet Services costs as well as Network Expenses of $0.9 million and $1.6 million, respectively. This increase is related to the continued expansion of our existing Ting Internet footprint.
Deferred costs of fulfillment as of March 31, 2021 increased by $4.1 million, or 4%, to $115.2 million from $111.1 million at December 31, 2020. This increase was primarily driven by Domain Services, accounting for $3.6 million of the increase which is due to the increase in current period costs for domain name registration and service renewals. Our Mobile Services segment followed, driving $0.5 million of the increase due to the increased capitalization of costs incurred in connection with the fulfillment of our MSE agreement with DISH.
Fiber Internet Services
During the three months ended March 31, 2021, costs related to provisioning high speed Internet access and billing solutions increased $0.9 million or 53%, to $2.6 million as compared to $1.7 million during three months ended March 31, 2020. The increase in costs were primarily driven by increased direct costs and bandwidth costs related to the continued expansion of the Ting Fiber network. Although directionally aligned with the experienced growth in revenue over the same period, the outpaced increase in cost of revenues for Fiber Internet services is a result of the necessary upfront investment and expenditure needed to build out the network in advance of anticipated revenue growth in any particular location.
Mobile Services
Retail Mobile Services
Cost of revenues from Retail Mobile Services for the three months ended March 31, 2021 decreased by $8.8 million or 89%, to $1.1 million from $9.9 million in the three months ended March 31, 2020. Consistent with the above discussion around net revenues, this decrease is a result of the significant changes to our Mobile Services segment that occurred during Fiscal 2020 as we transitioned from MVNO to MSE. Ting Mobile accounts for $8.3 million of this decrease (of which $1.9 million is reduced device costs and $6.4 million relates to reduced service costs), followed by Roam Mobility at $0.5 million of the total decrease. The cost of revenues incurred from Retail Mobile Services for three months ended March 31, 2021 is only reflective of the mobile telephony services and device costs associated with the small group of customers retained by the Company from the sale of historically larger Ting Mobile customer base to DISH.
Mobile Platform Services
Cost of revenues from Mobile Platform Services for the three months ended March 31, 2021 increased to $0.1 million as compared to the three months ended March 31, 2020. This increase is a result of new MSE business created as a result of the DISH Purchase Agreement in the prior year. No such comparable cost of revenues existed for the three months ended March 31, 2020. Tucows' MSE platform provides network access, provisioning and billing services for MVNOs, of which DISH is currently our sole customer. Costs incurred represent the amortization of previously capitalized costs incurred to fulfill the DISH MSE agreement over the term of the agreement.
Other Professional Services
Cost of revenues from Other Professional Services for the three months ended March 31, 2021 increased to $1.7 million as compared to the three months ended March 31, 2020. This increase is a result of new MSE business created as a result of the DISH Purchase Agreement in the prior year. No such comparable cost of revenues existed for the three months ended March 31, 2020. Tucows' professional services include IT system development and other transitional services including sales, marketing, customer support, order fulfillment, and data analytics for MVNOs, of which DISH is currently our sole customer. Costs incurred represent the personnel and related expenses of employees providing professional services to DISH.
Domain Services
Wholesale - Domain Services
Costs for Wholesale domain services for the three months ended March 31, 2021 decreased by $0.7 million to $35.8 million, when compared to the three months ended March 31, 2020. This was primarily driven by a large registry cost rebates earned in connection with strong performance and additions to domains under management over this same period as a results of the COVID-19 pandemic. As more businesses establish an online presence during this time, we have seen growth from large volume resellers across these brands. This has had a marginal impact on costs in the current period and will have a carryforward impact in subsequent periods as costs are recognized from previously deferred billed costs.
Wholesale - Value-Added Services
Costs for wholesale value-added services for the three months ended March 31, 2021 decreased by $0.2 million to $0.6 million, when compared to the three months ended March 31, 2020. This was driven by decreases in Digital Certificates, Email and Other revenues of $0.1 million during the three months ended March 31, 2020 consistent with the decrease in revenue described above.
Retail
Costs for retail domain services for the three months ended March 31, 2021 remained flat at $4.4 million when compared to the three months ended March 31, 2020.
Network Expenses
Network costs for the three months ended March 31, 2021 increased by $1.6 million to $7.2 million when compared to the three months ended March 31, 2020. The three-month increase was driven by depreciation as a result of the expansion of the Company’s increased network infrastructure associated with the continuing expansion of the Ting Fiber footprint and an increase in communication and productivity tool costs across our service lines.
SALES AND MARKETING
Sales and marketing expenses consist primarily of personnel costs. These costs include commissions and related expenses of our sales, product management, public relations, call center, support and marketing personnel. Other sales and marketing expenses include customer acquisition costs, advertising and other promotional costs.
|
(Dollar amounts in thousands of U.S. dollars)
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Sales and marketing
|
|
$
|
8,311
|
|
|
$
|
8,985
|
|
|
Decrease over prior period
|
|
$
|
(674
|
)
|
|
|
|
|
|
Decrease - percentage
|
|
|
(8
|
)%
|
|
|
|
|
|
Percentage of net revenues
|
|
|
12
|
%
|
|
|
11
|
%
|
Sales and marketing expenses for the three months ended March 31, 2021 decreased by $0.7 million, or 8%, to $8.3 million as compared to the three months ended March 31, 2020. This three-month decrease primarily related to a savings in marketing related expenses for Mobile Services due to the sale of the Ting Mobile customer base to DISH and shutdown of Roam Mobility brands in the prior year, which reduced marketing costs for our Mobile Services segment in the current period.
TECHNICAL OPERATIONS AND DEVELOPMENT
Technical operations and development expenses consist primarily of personnel costs and related expenses required to support the development of new or enhanced service offerings and the maintenance and upgrading of existing infrastructure. This includes expenses incurred in the research, design and development of technology that we use to register domain names, network access services, email, retail, domain portfolio and other Internet services, as well as to distribute our digital content services. All technical operations and development costs are expensed as incurred.
|
(Dollar amounts in thousands of U.S. dollars)
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Technical operations and development
|
|
$
|
3,132
|
|
|
$
|
2,751
|
|
|
Increase over prior period
|
|
$
|
381
|
|
|
|
|
|
|
Increase - percentage
|
|
|
14
|
%
|
|
|
|
|
|
Percentage of net revenues
|
|
|
4
|
%
|
|
|
3
|
%
|
Technical operations and development expenses for the three months ended March 31, 2021 increased by $0.4 million, or 14%, to $3.1 million when compared to the three months ended March 31, 2020. The increase in costs relates primarily to increased salaries and benefits driven by an expanding workforce and wage inflation focused on our shared services and engineering teams. In addition to an increase in internal resource costs, a substantial portion of this overall increase was driven from increased spending on external contractors to provide development resources to assist our internal shared services and engineering teams with development aspects of the MSE platform.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of compensation and related costs for managerial and administrative personnel, fees for professional services, public listing expenses, rent, foreign exchange and other general corporate expenses.
|
(Dollar amounts in thousands of U.S. dollars)
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
General and administrative
|
|
$
|
4,953
|
|
|
$
|
4,741
|
|
|
Increase over prior period
|
|
$
|
212
|
|
|
|
|
|
|
Increase - percentage
|
|
|
4
|
%
|
|
|
|
|
|
Percentage of net revenues
|
|
|
7
|
%
|
|
|
6
|
%
|
General and administrative expenses for the three months ended March 31, 2021 increased by $0.2 million, or 4% to $5.0 million as compared to the three months ended March 31, 2020. The increase was primarily driven by an increase in personnel and related expenses of $0.8 million and an increase in foreign exchange related expenses of $0.3 million. These increases in general and administrative expenses were offset by a decrease in both Mobile Services credit card fees as a result of the DISH Purchase Agreement that closed in the prior year and a decrease in other expenses including travel and facility costs, including the closure of our St. Catharines, Ontario office, in the amounts of $0.5 million and $0.4 million, respectively.
DEPRECIATION OF PROPERTY AND EQUIPMENT
|
(Dollar amounts in thousands of U.S. dollars)
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Depreciation of property and equipment
|
|
$
|
121
|
|
|
$
|
113
|
|
|
Increase over prior period
|
|
$
|
8
|
|
|
|
|
|
|
Increase - percentage
|
|
|
7
|
%
|
|
|
|
|
|
Percentage of net revenues
|
|
|
0
|
%
|
|
|
0
|
%
|
Depreciation costs remained flat for the three months ended March 31, 2021 at $0.1 million when compared to the three months ended March 31, 2020.
AMORTIZATION OF INTANGIBLE ASSETS
|
(Dollar amounts in thousands of U.S. dollars)
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Amortization of intangible assets
|
|
$
|
2,320
|
|
|
$
|
2,947
|
|
|
Decrease over prior period
|
|
$
|
(627
|
)
|
|
|
|
|
|
Decrease - percentage
|
|
|
(21
|
)%
|
|
|
|
|
|
Percentage of net revenues
|
|
|
3
|
%
|
|
|
4
|
%
|
Amortization of intangible assets for the three months ended March 31, 2021 decreased by $0.6 million to $2.3 million as compared to the three months ended March 31, 2020. The decrease is driven by write-off of Mobile Services related intangible assets in connection with the both the sale of the Ting Mobile customer base and the shutdown of Roam Mobility in the prior year. These decreases in amortization expense of $0.4 million, were accompanied by a further decrease related to the prior year acquisition of Cedar which accounted for a $0.2 million decrease in amortization expense. Network rights, brand and customer relationships acquired in connection with the following acquisitions are amortized on a straight-line basis over a range of two to seven years: eNom in January 2017, Ascio in March 2019, and Cedar in January 2020.
LOSS (GAIN) ON CURRENCY FORWARD CONTRACTS
Although our functional currency is the U.S. dollar, a major portion of our fixed expenses are incurred in Canadian dollars. Our goal with regard to foreign currency exposure is, to the extent possible, to achieve operational cost certainty, manage financial exposure to certain foreign exchange fluctuations and to neutralize some of the impact of foreign currency exchange movements. Accordingly, we enter into foreign exchange contracts to mitigate the exchange rate risk on portions of our Canadian dollar exposure.
|
(Dollar amounts in thousands of U.S. dollars)
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Loss (gain) on currency forward contracts
|
|
$
|
(253
|
)
|
|
$
|
441
|
|
|
Decrease over prior period
|
|
$
|
(694
|
)
|
|
|
|
|
|
Decrease - percentage
|
|
|
157
|
%
|
|
|
|
|
|
Percentage of net revenues
|
|
|
0
|
%
|
|
|
1
|
%
|
The Company recorded a net gain of $0.3 million on the change in fair value of outstanding contracts as well as realized on matured contracts during the three months ended March 31, 2021, compared to a loss of $0.4 million during the three months ended March 31, 2020.
At March 31, 2021, our balance sheet reflects a derivative instrument asset of $3.0 million and a liability of $0.1 million as a result of our existing foreign exchange contracts. Until their respective maturity dates, these contracts will fluctuate in value in line with movements in the Canadian dollar relative to the U.S. dollar.
OTHER INCOME (EXPENSES)
|
(Dollar amounts in thousands of U.S. dollars)
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Other income (expense), net
|
|
$
|
4,363
|
|
|
$
|
(1,237
|
)
|
|
Increase over prior period
|
|
$
|
5,600
|
|
|
|
|
|
|
Increase - percentage
|
|
|
(453
|
)%
|
|
|
|
|
|
Percentage of net revenues
|
|
|
6
|
%
|
|
|
1
|
%
|
Other Income during the three months ended March 31, 2021 increased by $5.6 million when compared to the three months ended March 31, 2020. This was primarily due to the $5.4 million increase due to the gain on sale of Ting Customer Assets to DISH in the current period. As described above, the Company receives a payout on the margin associated with the legacy customer base sold to DISH over the 10 year term of the agreement, as form of consideration for the sale of the legacy customer relationships. In addition to this, another contributing factor in the increase was lower interest incurred on our credit facility with the majority of the borrowings on the credit facility to support the build-out of the Ting Fiber network. Other expense consists primarily of the interest we incur in connection with our Amended 2019 Credit Facility. The interest incurred primarily relates to our loan balances obtained to fund the acquisition of eNom, Ascio and Cedar and funding for expenditures associated with the Company’s Fiber to the Home build program.
INCOME TAXES
The following table presents our provision for income taxes for the periods presented:
|
(Dollar amounts in thousands of U.S. dollars)
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Provision for income taxes
|
|
$
|
1,083
|
|
|
$
|
1,101
|
|
|
Decrease in provision over prior period
|
|
$
|
(18
|
)
|
|
|
|
|
|
Decrease - percentage
|
|
|
(2
|
)%
|
|
|
|
|
|
Effective tax rate
|
|
|
34
|
%
|
|
|
28
|
%
|
We operate in various tax jurisdictions, and accordingly, our income is subject to varying rates of tax. Losses incurred in one jurisdiction cannot be used to offset income taxes payable in another jurisdiction. Our ability to use income tax loss carry forwards and future income tax deductions is dependent upon our operations in the tax jurisdictions in which such losses or deductions arise. Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement carrying values and tax base of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
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 Fiscal 2021 adjusted for certain minimum state taxes as well as the inclusion of a $0.2 million tax expense related to 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, we 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 reflecting 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 projected future taxable income, uncertainties related to the industry in which the Company operates, and tax planning strategies in making this assessment.
We recognize accrued interest and penalties related to income taxes in income tax expense. We did not have significant interest and penalties accrued at March 31, 2021 and December 31, 2020, respectively.
ADJUSTED EBITDA
We believe that the provision of this supplemental non-GAAP measure allows investors to evaluate the operational and financial performance of our core business using similar evaluation measures to those used by management. We use adjusted EBITDA to measure our performance and prepare our budgets. Since adjusted EBITDA is a non-GAAP financial performance measure, our calculation of adjusted EBITDA may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. Because adjusted EBITDA is calculated before recurring cash charges, including interest expense and taxes, and is not adjusted for capital expenditures or other recurring cash requirements of the business, it should not be considered as a liquidity measure. See the Consolidated Statements of Cash Flows included in the attached financial statements. Non-GAAP financial measures do not reflect a comprehensive system of accounting and may differ from non-GAAP financial measures with the same or similar captions that are used by other companies and/or analysts and may differ from period to period. We endeavor to compensate for these limitations by providing the relevant disclosure of the items excluded in the calculation of adjusted EBITDA to net income based on GAAP, which should be considered when evaluating the Company's results. Tucows strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure.
Our adjusted EBITDA definition excludes depreciation, amortization of intangible assets, income tax provision, interest expense (net), accretion of contingent consideration, stock-based compensation, asset impairment, gains and losses from unrealized foreign currency transactions and costs that are one-time in nature and not indicative of on-going performance (profitability), including acquisition and transition costs. Gains and losses from unrealized foreign currency transactions removes the unrealized effect of the change in the mark-to-market values on outstanding foreign currency contracts not designated in accounting hedges, as well as the unrealized effect from the translation of monetary accounts denominated in non-U.S. dollars to U.S. dollars.
The following table reconciles adjusted EBITDA to net income:
|
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.
|
Adjusted EBITDA increased by less than $0.1 million to $12.7 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020. The increase in adjusted EBITDA from period-to-period was primarily driven by increased contribution from wholesale domain registrations, offset by decreased EBITDA contribution from Ting Fiber due to the current period reflecting a considerable ramp up of expenditures related to the Fiber network build and expansion plan.
OTHER COMPREHENSIVE INCOME (LOSS)
To mitigate the impact of the change in fair value of our foreign exchange contracts on our financial results, in October 2012 we begun applying hedge accounting for the majority of the contracts we need to meet our Canadian dollar requirements on a prospective basis.
The following table presents other comprehensive income for the periods presented:
|
(Dollar amounts in thousands of U.S. dollars)
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Other comprehensive income (loss)
|
|
$
|
(466
|
)
|
|
$
|
(1,191
|
)
|
|
Increase over prior period
|
|
$
|
725
|
|
|
|
|
|
|
Increase - percentage
|
|
|
(61
|
)%
|
|
|
|
|
|
Percentage of net revenues
|
|
|
(1
|
)%
|
|
|
(1
|
)%
|
The impact of the fair value adjustments on outstanding hedged contracts for the three months ended March 31, 2021 was a loss in OCI of $0.5 million as compared to a loss of $1.2 million for the three months ended March 31, 2020.
The net amount reclassified to earnings during the three months ended March 31, 2021 was a gain of $0.8 million compared to a loss of less than $0.1 million during the three months ended March 31, 2020.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2021, our cash and cash equivalents balance remained flat when compared to December 31, 2020. Our principal uses of cash were $13.9 million for the continued investment in property and equipment, $0.2 million for tax payments associated with stock option exercises, and $0.2 million for the acquisition of intangible assets. These uses of cash were offset by cash provided by operating activities of $14.1 million and $0.2 million of proceeds received on exercise of stock options.
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 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.
Cash Flow from Operating Activities
Net cash inflows from operating activities during the three months ended March 31, 2021 was $14.1 million, flat when compared to the three months ended March 31, 2020.
Net income, after adjusting for non-cash charges, during the three months ended March 31, 2021 was $9.6 million, a decrease of 3% when compared to the prior year. Net income included non-cash charges and recoveries of $7.4 million such as depreciation, amortization, stock-based compensation, excess tax benefits on stock-based compensation, deferred income taxes, loss on change in fair value of currency forward contracts, accretion of contingent consideration, amortization of debt discount and issuance costs, impairment of property and equipment, net right of use operating asset or liability, net amortization of contract costs, and loss on disposal of domain names. In addition, changes in our working capital provided $4.5 million. Positive contributions of $10.1 million from movements in deferred revenue, prepaid expenses and deposits, accounts payable, accrued liabilities, customer deposits, and accreditation fees payable were offset by $5.6 million utilized in changes from deferred costs of fulfillment, income taxes recoverable, inventory, and accounts receivable.
Cash Flow from Financing Activities
Net cash outflows from financing activities during the three months ended March 31, 2021 totaled less than $0.1 million as compared to cash outflows of $3.3 million during the three months ended March 31, 2020. Total cash outflows were driven by $0.2 million related to the payment of tax obligations resulting from the net exercise of stock options and loan payable costs. This cash outflow was offset by cash inflows related to the proceeds received on exercise of stock options of $0.2 million.
Cash Flow from Investing Activities
Investing activities during the three months ended March 31, 2021 used net cash of $14.1 million as compared to using $18.7 million during the three months ended March 31, 2020. Cash outflows of $13.9 million related to the investment in property and equipment, primarily to support the continued expansion of our Fiber footprint. The Company continues to invest in our existing Ting Towns of Centennial, Colorado, Charlottesville, Virginia, Fuquay-Varina, North Carolina, Wake Forest, North Carolina, Holly Springs, North Carolina, and Sandpoint, Idaho as well ramping construction in Roaring Fork, Colorado, Rolesville, North Carolina and Culver City, California as we seek to extend both our current network and expand to new towns. We expect our capital expenditures on building and expanding our fiber network to continue to increase during Fiscal 2021. In addition to investment in property and equipment, the current period used $0.2 million for the acquisition of other intangible assets.
Based on our operations, we believe that our cash flow from operations will be adequate to meet our anticipated requirements for working capital, capital expenditures and our loan repayments for at least the next 12 months.
We may need additional funds or seek other financing arrangements to facilitate more rapid expansion, develop new or enhance existing products or services, respond to competitive pressures or acquire or invest in complementary businesses, technologies, services or products. We may also evaluate potential acquisitions of other businesses, products and technologies. We currently have no commitments or agreements regarding the acquisition of other businesses. If additional financing is required, we may need additional equity or debt financing and any additional financing may be dilutive to existing investors. We may not be able to raise funds on acceptable terms, or at all.
Off Balance Sheet Arrangements
As of March 31, 2021 we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Contractual Obligations
In our 2020 Annual Report, we disclosed our contractual obligations. As of March 31, 2021, other than the items mentioned above, there have been no other material changes to those contractual obligations outside the ordinary course of business.