TUCOWS INC /PA/ - Quarter Report: 2019 March (Form 10-Q)

 

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

OR

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from           to          

 

Commission file number 1-32600

 

TUCOWS INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Pennsylvania	23-2707366
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

 

96 Mowat Avenue,

Toronto, Ontario M6K 3M1, Canada

(Address of Principal Executive Offices) (Zip Code)

 

(416) 535-0123

(Registrant's Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T §232.405 of this chapter during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
	Emerging Growth company ☐

                                              

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):  Yes ☐ No ☒

 

As of May 6, 2019, there were 10,654,861 outstanding shares of common stock, no par value, of the registrant.

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		TCX		NASDAQ

 

 

 

TUCOWS INC.

Form 10-Q Quarterly Report

INDEX

 

PART I FINANCIAL INFORMATION
Item 1.		Consolidated Financial Statements	3
		Consolidated Balance Sheets (unaudited) as of March 31, 2019 and December 31, 2018	3
		Consolidated Statements of Operations and Comprehensive Income (unaudited) for the three ended March 31, 2019 and 2018	4
		Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2019 and 2018	5
		Notes to Consolidated Financial Statements (unaudited)	6
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.		Controls and Procedures	40
PART II OTHER INFORMATION
Item 1.		Legal Proceedings	41
Item 1A.		Risk Factors	41
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.		Defaults Upon Senior Securities	41
Item 4.		Mine Safety Disclosures	41
Item 5.		Other Information	41
Item 6.		Exhibits	42
Signatures			43

 

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

  

Tucows®, EPAG®, Hover®, OpenSRS®, Platypus®, Ting®, eNom®, Roam®, Roam Mobility®, Bulkregister®, Ascio® and YummyNames® are registered trademarks of Tucows Inc. or its subsidiaries. Other service marks, trademarks and trade names of Tucows Inc. or its subsidiaries may be used in this Quarterly Report on Form 10-Q (this “Quarterly Report”). All other service marks, trademarks and trade names referred to in this Quarterly Report are the property of their respective owners. Solely for convenience, any trademarks referred to in this Quarterly Report may appear without the ® or TM symbol, but such references are not intended to indicate, in any way, that we or the owner of such trademark, as applicable, will not assert, to the fullest extent under applicable law, our or its rights, or the right of the applicable licensor, to these trademarks.

 

 

 

		March 31,				December 31,
		2019				2018 *
Assets
Current assets:
Cash and cash equivalents		$	11,035			$	12,637
Accounts receivable, net of allowance for doubtful accounts of $131 as of March 31, 2019 and $132 as of December 31, 2018			13,120				10,837
Inventory			3,367				3,775
Prepaid expenses and deposits			16,498				15,472
Prepaid domain name registry and ancillary services fees, current portion (note 11)			99,962				87,782
Income taxes recoverable			2,048				1,423
Total current assets			146,030				131,926
Prepaid domain name registry and ancillary services fees, long-term portion (note 11)			18,599				18,745
Property and equipment			55,486				48,065
Right of use operating lease asset (note 12)			12,206				-
Contract costs			1,371				1,390
Intangible assets (note 6)			61,991				49,395
Goodwill (note 6)			109,777				90,054
Total assets		$	405,460			$	339,575
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	8,459			$	8,445
Accrued liabilities			8,055				5,899
Customer deposits			14,571				11,919
Derivative instrument liability (note 5)			353				1,276
Deferred rent, current portion			-				21
Operating lease liability, current portion (note 12)			1,917				-
Loan payable, current portion (note 7)			24,788				18,400
Deferred revenue, current portion			131,801				116,734
Accreditation fees payable, current portion			1,076				985
Income taxes payable			702				1,668
Total current liabilities			191,722				165,347
Deferred revenue, long-term portion			27,618				26,960
Accreditation fees payable, long-term portion			239				250
Deferred rent, long-term portion			-				116
Operating lease liability, long-term portion (note 12)			9,793				-
Loan payable, long-term portion (note 7)			68,026				46,201
Deferred tax liability			24,621				20,925
Stockholders' equity (note 14)
Preferred stock - no par value, 1,250,000 shares authorized; none issued and outstanding			-				-
Common stock - no par value, 250,000,000 shares authorized; 10,643,750 shares issued and outstanding as of March 31, 2019 and 10,627,988 shares issued and outstanding as of December 31, 2018			16,188				15,823
Additional paid-in capital			3,844				3,953
Retained earnings			63,609				60,810
Accumulated other comprehensive income (loss)			(200	)			(810	)
Total stockholders' equity			83,441				79,776
Total liabilities and stockholders' equity		$	405,460			$	339,575
Commitments and contingencies (note 17)

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		Three months ended March 31,
		2019				2018 *
Net revenues (note 10)		$	78,953			$	95,795
Cost of revenues (note 10)
Cost of revenues			51,932				68,972
Network expenses			2,395				2,574
Depreciation of property and equipment			1,801				1,131
Amortization of intangible assets (note 6)			174				499
Total cost of revenues			56,302				73,176
Gross profit			22,651				22,619
Expenses:
Sales and marketing			8,741				8,365
Technical operations and development			2,523				2,095
General and administrative			4,448				4,530
Depreciation of property and equipment			124				101
Amortization of intangible assets (note 6)			1,866				1,832
Loss (gain) on currency forward contracts (note 5)			(79	)			(3	)
Total expenses			17,623				16,920
Income from operations			5,028				5,699
Other income (expenses):
Interest expense, net			(972	)			(896	)
Other income, net			-				124
Total other income (expenses)			(972	)			(772	)
Income before provision for income taxes			4,056				4,927
Provision for income taxes (note 8)			1,257				1,183
Net income before redeemable non-controlling interest			2,799				3,744
Redeemable non-controlling interest			-				(26	)
Net income attributable to redeemable non-controlling interest			-				26
Net income for the period			2,799				3,744
Other comprehensive income, net of tax
Unrealized income (loss) on hedging activities (note 5)			549				17
Net amount reclassified to earnings (note 5)			61				-
Other comprehensive income (loss) net of tax (expense) recovery of ($194) and ($6) for the periods ended March 31, 2019 and March 31, 2018, respectively (note 5)			610				17
Comprehensive income, net of tax for the period		$	3,409			$	3,761
Basic earnings per common share (note 9)		$	0.26			$	0.35
Shares used in computing basic earnings per common share (note 9)			10,634,842				10,588,718
Diluted earnings per common share (note 9)		$	0.26			$	0.35
Shares used in computing diluted earnings per common share (note 9)			10,835,897				10,792,613

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		Three months ended March 31,
		2019					2018 *
Cash provided by:
Operating activities:
Net income for the period		$	2,799			$	3,744
Items not involving cash:
Depreciation of property and equipment			1,925				1,232
Loss on write off of property and equipment			22				-
Amortization of debt discount and issuance costs			78				70
Amortization of intangible assets			2,040				2,331
Net amortization contract costs			19				25
Deferred income taxes (recovery)			462				(47	)
Excess tax benefits on share-based compensation expense			(356	)			(144	)
Net Right of use operating assets/Operating lease liability			(30	)			-
Loss on disposal of domain names			4				37
Other income			-				(129	)
Loss (gain) on change in the fair value of forward contracts			(118	)			(3	)
Stock-based compensation			525				578
Change in non-cash operating working capital:
Accounts receivable			(1,188	)			(309	)
Inventory			408				46
Prepaid expenses and deposits			(390	)			(525	)
Prepaid domain name registry and ancillary services fees			(1,716	)			11,344
Income taxes recoverable			(1,236	)			265
Accounts payable			786				2,132
Accrued liabilities			1,321				759
Customer deposits			287				(2,275	)
Deferred revenue			3,269				(9,598	)
Accreditation fees payable			80				40
Net cash provided by operating activities			8,991				9,573
Financing activities:
Proceeds received on exercise of stock options			71				7
Payment of tax obligations resulting from net exercise of stock options			(340	)			(147	)
Proceeds received on loan payable			32,940				-
Repayment of loan payable			(4,600	)			(4,572	)
Payment of loan payable costs			(205	)			(4	)
Net cash (used in) provided by financing activities			27,866				(4,716	)
Investing activities:
Additions to property and equipment			(10,435	)			(5,117	)
Acquisition of a portion of the minority interest in Ting Virginia, LLC (note 4(a))			-				(1,200	)
Acquisition of Ascio Technologies, net of cash of $1,437 (note 4(b))			(28,024	)			-
Acquisition of intangible assets			-				(1	)
Net cash used in investing activities			(38,459	)			(6,318	)
(Decrease) increase in cash and cash equivalents			(1,602	)			(1,461	)
Cash and cash equivalents, beginning of period			12,637				18,049
Cash and cash equivalents, end of period		$	11,035			$	16,588
Supplemental cash flow information:
Interest paid		$	976			$	901
Income taxes paid, net		$	2,118			$	1,337
Supplementary disclosure of non-cash investing and financing activities:
Property and equipment acquired during the period not yet paid for		$	392			$	398

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1. Organization of the Company:

 

Tucows Inc. (referred to throughout this report as the “Company”, “Tucows”, “we”, “us” or through similar expressions) provides simple useful services that help people unlock the power of the Internet. The Company provides U.S. consumers and small businesses with mobile phone services nationally and high-speed fixed Internet access in selected towns. The Company is also a global distributor of Internet services, including domain name registration, digital certificates, and email. It provides these services primarily through a global Internet-based distribution network of Internet Service Providers, web hosting companies and other providers of Internet services to end-users.

 

 

2. Basis of presentation:

 

The accompanying unaudited interim consolidated balance sheets, and the related consolidated statements of operations and comprehensive income and cash flows reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair presentation of the financial position of Tucows and its subsidiaries as at March 31, 2019 and the results of operations and cash flows for the interim periods ended March 31, 2019 and 2018. The results of operations presented in this Quarterly Report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for future periods.

 

The accompanying unaudited interim consolidated financial statements have been prepared by Tucows in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in the Company's annual audited consolidated financial statements and accompanying notes have been condensed or omitted. Other than the exception noted below, these interim consolidated financial statements and accompanying notes follow the same accounting policies and methods of application used in the annual financial statements and should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2018 included in Tucows' 2018 Annual Report on Form 10-K filed with the SEC on March 5, 2019 (the “2018 Annual Report”). There have been no material changes to our significant accounting policies and estimates during the three months ended March 31, 2019 as compared to the significant accounting policies and estimates described in our 2018 Annual Report, except as described in Note 3 – Recent accounting pronouncements.

 

 

3. Recent accounting pronouncements:

 

Recent Accounting Pronouncements Adopted

 

ASU 2016-02: Adoption of Leases (Topic 842)

 

The Company adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) as of January 1, 2019.

 

The Company has elected to apply ASU 2016-02 using the modified retrospective approach with the transition relief provided by ASC 2018-11, which allows the Company to use January 1, 2019 as the date of initial application. As a result, all comparative periods have not been restated and continue to be reported under Topic 840.

 

The Company elected the practical expedient to use hindsight when considering the likelihood that lessee options to extend or terminate a lease or purchase the underlying asset will be exercised, and in assessing the impairment of right-of-use assets.

 

The Company elected the practical expedient to separate non-lease components from the associated lease components for its existing datacenter, corporate offices and fiber-optic cable leases at transition.

 

As a result of adopting ASU 2016-02, the most significant effects were the recognition of a right-of-use (“ROU”) asset and lease liability related to operating leases of approximately $8.8 million and approximately $8.3 million, respectively at January 1, 2019. The difference between the ROU asset and lease liability of $0.5 million was due to the net reclassification of previously deferred rent and prepaid expenses of approximately $0.1 million and approximately $0.6 million, respectively to the ROU asset. There was no impact on opening retained earnings on adoption. The adoption of ASU 2016-02 did not have a significant impact on our consolidated statements of comprehensive income or our consolidated statements of cash flows.

 

 

 

ASU 2017-12: Derivatives and Hedging (Topic 815)

 

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12”), which better aligns an entity’s risk management activities and financial reporting for hedging relationship through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The new standard expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and hedged item in the financial statements. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. The Company adopted the targeted improvements to ASU 2017-12 in the first quarter of 2019 using a modified retrospective approach to existing hedging relationships. The new guidance did not have a material impact on our consolidated financial statements.

 

Recent Accounting Pronouncements Not Yet Adopted

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2018-15”). ASU 2018-15 helps entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance on accounting for implementation costs when the cloud computing arrangement does not include a licence and is accounted for as a service contract. The amendments in ASU 2018-15 require an entity (customer) in a hosting arrangement to assess which implementation costs to capitalize vs expense as it relates to a service contract. The amendments also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. ASU 2018-15 will be effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently in the process of evaluating the quantitative impact of ASU 2018-15, and transition methods.

 

 

4. Acquisitions:

 

(a)	Blue Ridge Websoft

 

On February 27, 2015, Ting Fiber, Inc., one of the Company’s wholly owned subsidiaries, acquired a 70% ownership interest in Ting Virginia, LLC and its subsidiaries, Blue Ridge Websoft, LLC (doing business as Blue Ridge Internet Works), Fiber Roads, LLC and Navigator Network Services, LLC for consideration of approximately $3.5 million.

 

On February 1, 2017, under the terms of a call option in the agreement, Ting Fiber, Inc. acquired an additional 20% interest in Ting Virginia, LLC from the selling shareholders (the “Minority Shareholders”) for consideration of $2.0 million.

 

On February 13, 2018, the Company entered into an agreement with the Minority Shareholders pursuant to which the Minority Shareholders could immediately exercise their put option to sell their remaining 10% ownership interest in Ting Virginia, LLC for $1.2 million to the Company.  The put option was exercised on February 13, 2018 and the Company paid $1.2 million for the remaining 10% ownership interest and Ting Virginia, LLC became a wholly-owned subsidiary of the Company. 

 

(b)

Ascio

 

On March 18, 2019, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with its indirect wholly owned subsidiary, Ting Fiber, Inc., and NetNames European Holdings ApS, CSC Administrative Services Limited UK, and Corporation Service Company (“CSC”), pursuant to which Ting Fiber, Inc. purchased from CSC all of the equity of Ascio Technologies, Inc. (“Ascio”), a domain registrar business, and all of CSC’s assets related to that business. The purchase price was $29.5 million, which represented the agreed upon purchase of $29.44 million plus an amount of $21,205 related to the estimated working capital deficiency acquired.

 

 

The Company has prepared a preliminary purchase price allocation of the assets acquired and the liabilities assumed of Ascio based on management’s best estimates of fair value. The final purchase price allocation may vary based on final appraisals, valuations and analyses of the fair value of the acquired assets and assumed liabilities. The preliminary purchase price allocation is pending the finalization of the fair value of deferred revenue and for potential working capital adjustments to assets and liabilities. We expect to finalize this determination on or before September 30, 2019.

 

 

As required by Accounting Standards Codification (“ASC”) 805, Business Combinations, the Company has recorded deferred revenue at fair value at the acquisition date, which was determined by estimating the costs associated with customer support services and prepaid domain name registration fees to fulfill the contractual obligations over the remaining life of the contract at the acquisition date plus a normal profit margin.

 

All definite life intangible assets acquired, including brand, developed technology and customer relationships will be amortized over 7 years.

 

The goodwill related to this acquisition is primarily attributable to synergies expected to arise from the acquisition and is not deductible for tax purposes.

 

In connection with this acquisition, the Company incurred total acquisition related costs of $0.5 million of which $0.3 million is included in General & Administrative expenses in the consolidated statements of operations and comprehensive income for the three months ended March 31, 2019.

 

The following table presents selected unaudited pro forma information for the Company assuming the acquisition of Ascio had occurred as of January 1, 2018. This pro forma information does not purport to represent what the Company’s actual results would have been if the acquisition had occurred as of the date indicated or what results would be for any future periods.

 

 

The amount of revenue recognized by since the acquisition date included in the consolidated statements of operations and comprehensive income for the three months ended March 31, 2019 is $0.8 million.

 

The net income recognized since the acquisition date included in the consolidated statements of operations and comprehensive income for the three months ended March 31, 2019 is a loss of $0.1 million.

 

 

 

5. Derivative instruments and hedging activities:

 

Foreign currency forward contracts

 

In October 2012, the Company entered into a hedging program with a Canadian chartered bank to limit the potential foreign exchange fluctuations incurred on its future cash flows related to a portion of payroll, rent, and payments to Canadian domain name registry suppliers that are denominated in Canadian dollars and are expected to be paid by its Canadian operating subsidiary. As part of its risk management strategy, the Company uses derivative instruments to hedge a portion of the foreign exchange risk associated with these costs. The Company does not use these forward contracts for trading or speculative purposes. These forward contracts typically mature between one and eighteen months.

 

The Company has designated certain of these transactions as cash flow hedges of forecasted transactions and foreign currency denominated liabilities under ASC Topic 815, Derivatives and Hedging (“ASC 815”). For certain contracts, as the critical terms of the hedging instrument and the entire hedged forecasted transaction are the same in accordance with ASC 815, the Company has been able to conclude that changes in fair value and cash flows attributable to the risk of being hedged are expected to completely offset at inception and on an ongoing basis. Unrealized gains or losses on these contracts have been included within other comprehensive income (“OCI”). The fair value of the contracts, as of March 31, 2019, is recorded as derivative instrument liabilities. As a result of adopting the targeted improvements on January 1, 2019, for any existing contracts on the effective date of adoption and thereafter, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness will be recorded in OCI.

 

 

As of March 31, 2019, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $30.6 million, of which $27.9 million were designated as hedges. As of December 31, 2018, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $40.5 million, of which $36.5 million were designated as hedges.

 

 

Fair value of derivative instruments and effect of derivative instruments on financial performance 

 

The effect of these derivative instruments on our consolidated financial statements were as follows (amounts presented do not include any income tax effects).

 

Fair value of derivative instruments in the consolidated balance sheets

 

 

Movement in AOCI balance for the three months ended March 31, 2019 (Dollar amounts in thousands of U.S. dollars):

 

 

Effects of derivative instruments on income and OCI for the three months ended March 31, 2019 are as follows (Dollar amounts in thousands of U.S. dollars):

  

 

  

In addition to the above, for those foreign currency forward contracts not designated as hedges, the Company recorded a loss on settlement of less than $0.1 million for the three months ended March 31, 2019 (nil for the three months ended March 31, 2018) and a gain of $0.1 million for the change in fair value of outstanding contracts for the three months ended March 31, 2019 (gain of less than $0.1 million for the three months ended March 31, 2018), in the consolidated statement of operations and comprehensive income.

  

 

6. Goodwill and Other Intangible Assets:

 

Goodwill

 

Goodwill represents the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed in our acquisitions.

 

The Company's Goodwill balance is $109.8 million as of March 31, 2019 (December 31, 2018 – $90.1 million), up $19.7 million from December 31, 2018, as a result of the acquisition of Ascio (See Note 4 (b) – Acquisitions for more information). The Company's goodwill relates 98% ($107.6 million) to its Domain Services operating segment and 2% ($2.2 million) to its Network Access Services operating segment.

 

Goodwill is not amortized, but is subject to an annual test, or more frequently if impairment indicators are present.

 

Other Intangible Assets:

 

Intangible assets consist of acquired brand, technology, customer relationships, surname domain names, direct navigation domain names and network rights. The Company considers its intangible assets consisting of surname domain names and direct navigation domain names as indefinite life intangible assets. The Company has the exclusive right to these domain names as long as the annual renewal fees are paid to the applicable registry. Renewals occur routinely and at a nominal cost. The indefinite life intangible assets are not amortized but are subject to impairment assessments performed throughout the year. As part of the normal renewal evaluation process during the periods ended March 31, 2019 and March 31, 2018, the Company assessed that certain domain names that were originally acquired in the June 2006 acquisition of Mailbank.com Inc. that were up for renewal, should not be renewed.   

 

Intangible assets, comprising brand, technology, customer relationships and network rights are being amortized on a straight-line basis over periods of two to fifteen years.

 

A summary of acquired intangible assets for the three months ended March 31, 2019 is as follows (Dollar amounts in thousands of U.S. dollars): 

 

 

The following table shows the estimated amortization expense in future periods, assuming no further additions to acquired intangible assets are made (Dollar amounts in thousands of U.S. dollars):

 

 

As of March 31, 2019, the accumulated amortization for the definite life intangible assets was $26.6 million. As of December 31, 2018, the accumulated amortization for the definite life intangible assets was $24.5 million.

 

 

 

7. Loan payable:

 

2017 Amended Credit Facility

 

On January 20, 2017, the Company entered into a secured Credit Agreement (the “2017 Amended Credit Facility”) with Bank of Montreal (“BMO”), Royal Bank of Canada and Bank of Nova Scotia (collectively BMO, the “Lenders”) under which the Company has access to an aggregate of up to $140 million in funds.

 

In connection with the 2017 Amended Credit Agreement, the Company incurred $0.6 million of fees paid to lenders and debt issuance costs, which have been reflected as a reduction to the carrying amount of the loan payable and will be amortized over the term of the credit facility agreement.

 

The obligations of the Company under the 2017 Amended Credit Facility are secured by a first priority lien on substantially all of the personal property and assets of the Company. The 2017 Amended Credit Facility has a four-year term.

 

The 2017 Amended Credit Facility has a four-year term. Under the 2017 Amended Credit Facility, the Company has access to an aggregate of up to $140 million in funds that are available as follows:

 

●

a $5 million revolving credit facility (“Facility A”);

●

a $15 million revolving reducing term facility (“Facility B”);

●

a $35.5 million non-revolving facility (“Facility C”); and

●

a $84.5 million non-revolving facility (“Facility D”).

  

On March 18, 2019, the Company entered into the Second Amendment to the 2017 Credit Facility to provide the Lenders consent for the acquisition of Ascio (discussed in Note 4 (b) – Acquisitions) and to reallocate borrowing limits between loan facilities. As a result of the Second Amendment to the 2017 Credit Facility, the borrowing limit of Facility B was decreased by $9 million to $6 million, and the borrowing limit of Facility C was increased by $9 million $44.5 million. All other terms associated with the 2017 Amended Credit Facility remained the same.

 

We incurred costs associated with the Second Amendment to the 2017 Credit Facility of $0.2 million, which have been capitalized and will amortize over the term of the loan.

 

Borrowings under the 2017 Amended Credit Facility accrue interest and standby fees at variable rates based on borrowing elections by the Company and the Company’s Total Funded Debt to EBITDA as described below. The purpose of Facility A is for general working capital and general corporate requirements, while Facility B and Facility C support share repurchases, acquisitions and capital expenditures associated with the Company’s Fiber to the Home program (“FTTH”). Facility D was provided and used for the acquisition of eNom.

 

The repayment terms for Facility A require monthly interest payments with any final principal payment becoming due upon maturity of the 2017 Amended Credit Facility. Under the repayment terms for Facility B, at December 31st of each year, balances drawn during the year that remain outstanding will become payable on a quarterly basis commencing the first quarter of the following year, for the period of amortization based on the purpose of the draw. For Facilities C and D, each draw will become payable beginning the first full quarter post initial draw for the period of amortization based on the purpose of the draw. The amortization periods for Facilities B, C and D are based on the purposes of the draws as follows: draws for share repurchases are repaid over four years, draws for acquisitions over five years and draws for FTTH capital expenditures over seven years. The 2017 Amended Credit Facility also includes a mechanism that is triggered based on the Company’s Total Funded Debt to EBITDA calculation at the end of each fiscal year. If Total Funded Debt to EBITDA exceeds 2.25:1 at December 31 of any year during the term, the Company is obligated to make a repayment of 50% of Excess Cash Flow in that year as defined under the agreement.

 

The 2017 Amended Credit Facility contains customary representations and warranties, affirmative and negative covenants, and events of default. The 2017 Amended Credit Facility requires that the Company to comply with the following financial covenants at all times, which are to be calculated on a rolling four quarter basis: (i) maximum Total Funded Debt to EBITDA Ratio of 2.25:1; and (ii) minimum Fixed Charge Coverage Ratio of 1.20:1. Further, the Company’s maximum annual Capital Expenditures cannot exceed $65.0 million per year, which limit will be reviewed on an annual basis. In addition, funded share repurchases are not to exceed $20 million, or up to $40 million so long as the total loans related to share repurchases do not exceed 1.5 times of trailing twelve months EBITDA. As at and for the periods ending March 31, 2019, and March 31, 2018, the Company was in compliance with these covenants.

 

 

 Borrowings under the 2017 Amended Credit Facility will accrue interest and standby fees based on the Company’s Total Funded Debt to EBITDA ratio and the availment type as follows:

 

 

The following table summarizes the Company’s borrowings under Facilities A – D (Dollar amounts in thousands of U.S. dollars):

 

 

The following table summarizes our scheduled principal repayments as of March 31, 2019 (Dollar amounts in thousands of U.S. dollars):

 

 

Other Credit Facilities

 

Prior to the Company entering into the 2017 Amended Credit Facility, the Company had credit agreements (collectively the “Prior Credit Facilities”) with BMO, which provide the Company with continued access to a treasury risk management facility and a credit card facility. All remaining credit facilities under the Amended Credit Facility have been terminated.

  

The treasury risk management facility under the Prior Credit Facilities provides for a $3.5 million settlement risk line to assist the Company with hedging Canadian dollar exposure through foreign exchange forward contracts and/or currency options. Under the terms of the Prior Credit Facilities, the Company may enter into such agreements at market rates with terms not to exceed 18 months. As of March 31, 2019, the Company held contracts in the amount of $30.6 million to trade U.S. dollars in exchange for Canadian dollars. See Note 5 – Derivative instruments and hedging activities for more information.

 

 

8. Income taxes

 

For the three months ended Mach 31, 2019, we recorded an income tax expense of $1.3 million on income before income taxes of $4.1 million, using an estimated effective tax rate for the fiscal year ending December 31, 2019 (“Fiscal 2019”) adjusted for certain minimum state taxes as well as the inclusion of a $0.4 million tax recovery 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. Comparatively, for the three months ended March 31, 2018, the Company recorded an income tax expense of $1.2 million on income before taxes of $4.9 million, using an estimated effective tax rate for the 2018 fiscal year and adjusted for the $0.1 million tax recovery impact related to ASU 2016-09. 

 

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the years in which those temporary differences become deductible. Management considers projected future taxable income, uncertainties related to the industry in which the Company operates, and tax planning strategies in making this assessment.

 

The Company recognizes accrued interest and penalties related to income taxes in income tax expense. The Company did not have significant interest and penalties accrued at March 31, 2019 and December 31, 2018, respectively.

 

In Fiscal 2017, in connection with the eNom acquisition, we acquired deferred tax liabilities primarily composed of prepaid registry fees. As a result, we aligned our tax methodology pertaining to the deductibility of prepaid registry fees for our other subsidiaries. In Fiscal 2018, we determined that we were in technical violation with respect to the administrative application of the accounting method change relating to the deductibility of prepaid registry fees for these additional subsidiaries. Based on the Company’s examination of administrative practices and precedents by the IRS, we believe that on a more likely than not basis that our tax position will be sustained. If the position is not sustained, then the accounting method change would be deferred into the following taxation period and we may be subject to incremental taxes as well as interest and penalties.

 

 

 

9. Basic and diluted earnings per common share:

 

Basic earnings per common share has been calculated on the basis of net income for the period divided by the weighted average number of common shares outstanding during each year. Diluted earnings per share gives effect to all dilutive potential common shares outstanding at the end of the year assuming that they had been issued, converted or exercised at the later of the beginning of the year or their date of issuance. In computing diluted earnings per share, the treasury stock method is used to determine the number of shares assumed to be purchased from the conversion of common share equivalents or the proceeds of the exercise of options. 

 

The following table reconciles the numerators and denominators of the basic and diluted earnings per common share computation (Dollar amounts in thousands of U.S. dollars, except per share amounts):

 

 

  

For the three months ended March 31, 2019, outstanding options to purchase 121,300 common shares were not included in the computation of diluted income per common share because all such options’ exercise price was greater than the average market price of the common shares for the period as compared to the three months ended March 31, 2018, where 333,300 outstanding options were not included in the computation.

 

During the three months ended March 31, 2019, the Company did not repurchase any shares under the stock buyback program which commenced on February 13, 2019, and will be terminated on or before February 13, 2020, or under the stock buyback program commenced on February 14 2018 and terminated on February 13, 2019.

 

During the three months ended March 31, 2018, no common shares were repurchased and cancelled under the terms of our stock repurchase program which commenced on February 14, 2018, terminated on February 13, 2019 or under the program commenced March 1 2017, and terminated on February 14 2018.

 

 

 

10. Revenue

 

Nature of goods and services

 

The following is a description of principal activities – separated by reportable segments – from which the Company generates its revenue. For more detailed information about reportable segments. See Note 13 – Segment reporting for more information.

 

(a)

Network Access Services

 

The Company generates Network Access Services revenues primarily through the provisioning of mobile services (“Ting Mobile”). Other sources of revenue include the provisioning of fixed high-speed Internet access (“Ting Internet”) as well as billing solutions to Internet Service Providers (“ISPs”).

 

 

Ting wireless usage contracts grant customers access to standard talk, text and data mobile services. Ting mobile contracts are billed based on the actual amount of monthly services utilized by each customer during their billing cycle and charged to customers on a postpaid basis. Voice minutes, text messages and megabytes of data are each billed separately based on a tiered pricing program. The Company recognizes revenue for Ting mobile usage based on the actual amount of monthly services utilized by each customer.

 

Ting Internet contracts provide customers Internet access at their home or business through the installation and use of our fiber optic network. Ting Internet contracts are generally prepaid and grant customers with unlimited bandwidth based on a fixed price per month basis. Because consideration is collected before the service period, revenue is initially deferred and recognized as the Company performs its obligation to provide Internet access. Though the Company does not consider the installation of fixed Internet access to be a distinct performance obligation, the fees related to installation are immaterial and therefore revenue is recognized as billed.

 

Both Ting Mobile and Ting Internet access services are primarily contracted through the Ting website, for one month at a time and contain no commitment to renew the contract following each customer’s monthly billing cycle. The Company’s billing cycle for all Ting Mobile and Ting Internet customers is computed based on the customer’s activation date. In order to recognize revenue as the Company satisfies its obligations, we compute the amount of revenues earned but not billed from the end of each billing cycle to the end of each reporting period. In addition, revenues associated with the sale of wireless devices and accessories and Internet hardware to subscribers are recognized when title and risk of loss is transferred to the subscriber and shipment has occurred. Incentive marketing credits given to customers are recorded as a reduction of revenue.

 

Our Roam Mobility brand also offers standard talk, text and data mobile services. Roam Mobility customers prepay for their usage through the Roam Mobility website. When prepayments are received the amount is deferred, and subsequently recognized as the Company satisfies its obligation to provide mobile services. In addition, revenues associated with the sale of SIM cards are recognized when title and risk of loss is transferred to the subscriber and shipment has occurred. Incentive marketing credits given to customers are recorded as a reduction of revenue.

 

In those cases, where payment is not received at the time of sale, revenue is not recognized at contract inception unless the collection of the related accounts receivable is reasonably assured. The Company records costs that reflect expected refunds, rebates and credit card charge-backs as a reduction of revenues at the time of the sale based on historical experiences and current expectations. 

 

(b)

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 ratably over the registration period as domain registration contracts contain a ‘right to access’ license of IP, which is a distinct performance obligation measured over time. The registration period begins once the Company has confirmed that the requested domain name has been appropriately recorded in the registry under contractual performance standards.

 

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

 

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

 

The Company also sells the rights to the Company’s portfolio domains or names acquired through the Company’s domain expiry stream. Revenue generated from sale of domain name contracts, containing a distinct performance obligation to transfer the domain name rights under the Company’s control, is generally recognized once the rights have been transferred and payment has been received in full.

 

 

Advertising revenue is derived through domain parking monetization, whereby the Company contracts with third-party Internet advertising publishers to direct web traffic from the Company’s domain expiry stream domains and Internet portfolio domains to advertising websites. Compensation from Internet advertising publishers is calculated variably on a cost-per-action basis based on the number of advertising links that have been visited in a given month. Given that the variable consideration is calculated and paid on a monthly basis, no estimation of variable consideration is required.

 

Disaggregation of Revenue

 

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

 

 

¹As a result of the bulk transfer of 2.65 million domain names to Namecheap on January 5th, 2018, recognized revenue for the three months ended March 31, 2018 includes $14.6 million related to previously deferred revenue for these names.

 

During the three months ended March 31, 2019, no customer accounted for more than 10% of total revenue. During the three months ended March 31, 2018, one customer accounted for 18% of revenue. As at March 31, 2019 and December 31, 2018, no customer accounted for more than 10% of accounts receivable.

 

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

 

 

¹As a result of the bulk transfer of 2.65 million domain names to Namecheap on January 5th, 2018, recognized cost of sales for the three months ended March 31, 2018 includes $14.5 million related to prepaid costs for these names.

 

 

Contract Balances

 

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

 

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

 

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

 

The opening balance of deferred revenue was $143.7 million as of January 1, 2019. Significant changes in deferred revenue were as follows (Dollar amounts in thousands of U.S. dollars):

 

Deferred Revenue

 

 

1The Company acquired Ascio on March 18, 2019. As part of the transition, the Company acquired active domain name contracts for terms ranging from 1 - 10 years, for which the registration fees have already been collected from customers. As required by ASC 805, Business Combinations, the Company has recorded deferred revenue at fair value at the acquisition date, which was determined by estimating the costs associated with customer support services and prepaid domain name registration fees to fulfill the contractual obligations over the remaining life of the contract at the acquisition date plus a normal profit margin.

 

Remaining Performance Obligations:

 

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

 

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

 

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

 

 

11. Costs to obtain and fulfill a contract

 

Deferred costs of fulfillment

 

Deferred costs to fulfill contracts generally consist of domain registration costs which have been paid to a domain registry, and are capitalized as Prepaid domain name registry and ancillary services fees. These costs are deferred and amortized over the life of the domain which generally ranges from one to ten years. For the three months ended March 31, 2019, the Company capitalized $43.3 million and also amortized $41.5 million of contract costs, respectively. We also acquired $10.3 million of prepaid domain name registry and ancillary service fees in the Ascio acquisition, which took place on March 18, 2019. Amortization of contract fulfillment costs is primarily included in cost of revenue. The breakdown of the movement in the prepaid domain name registry and ancillary services fees balance for the three months ended March 31, 2019 is as follows (Dollar amounts in thousands of U.S. dollars).

 

 

1The Company acquired Ascio on March 18, 2019. As part of the transition, the Company acquired active domain name contracts with a terms ranging from 1 - 10 years, for which fees to suppliers were paid in advance.

 

 

 

12. Leases

 

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

 

Our leases have remaining lease terms of 1 year to 19 years, some of which may include options to extend the leases for up to 5 years, and some of which may include options to terminate the leases within 1 year.

 

We have elected to consider leases with a term of 12 months or less as short-term, and as such have not been recognized on the balance sheet. We recognize lease expense for short-term leases on a straight-line basis over the lease term.

 

The Company elected the practical expedient to use hindsight when considering the likelihood that lessee options to extend or terminate a lease or purchase the underlying asset will be exercised, and in assessing the impairment of right-of-use assets.

 

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

 

For corporate offices, datacenter and fiber-optic cable leases, the Company has elected the practical expedient to combine lease and non-lease components.

 

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

 

 

Lease Cost is presented in general and administrative expenses and network expenses within our consolidated statements of operations and comprehensive income. 

 

Information related to leases was as follows (Dollar amounts in thousands of U.S. dollars):

 

 

Maturity of lease liability as of March 31, 2019 (Dollar amounts in thousands of U.S. dollars):

 

 

Operating lease payments include payments under the non-cancellable term and approximately $2.4 million related to options to extend lease terms that are reasonably certain of being exercised.

 

As of March 31, 2019, we have additional office space operating leases that have not yet commenced, with future lease payments of $0.1 million. These operating leases will commence in the second quarter of 2019 with lease terms of 1 year or less, and therefore short-term.

 

In January 2019, the Company modified a corporate office lease to increase the term, leading to an increase to both the right of use operating lease asset and right of use operating lease liability of $3.9 million.

  

 

 

13. Segment reporting:

 

(a)  We are organized and managed based on two operating segments which are differentiated primarily by their services, the markets they serve and the regulatory environments in which they operate and are described as follows:

 

1.     Network Access Services - This segment derives revenue from the sale of mobile phones, telephony services, high speed Internet access, billing solutions to individuals and small businesses primarily through the Ting website. Revenues are generated in the U.S.

 

2.     Domain Services – This segment includes wholesale and retail domain name registration services, value added services and portfolio services. The Company primarily earns revenues from the registration fees charged to resellers in connection with new, renewed and transferred domain name registrations; the sale of retail Internet domain name registration and email services to individuals and small businesses; and by making its portfolio of domain names available for sale or lease. Domain Services revenues are attributed to the country in which the contract originates, primarily Canada and the U.S.

 

The Chief Executive Officer (the “CEO”) is the chief operating decision maker and regularly reviews the operations and performance by segment. The CEO reviews gross profit as (a) a key measure of performance for each segment and (b) to make decisions about the allocation of resources. Sales and marketing expenses, technical operations and development expenses, general and administrative expenses, depreciation of property and equipment, amortization of intangibles assets, impairment of indefinite life intangible assets, gain on currency forward contracts and other expense net are organized along functional lines and are not included in the measurement of segment profitability. Total assets and total liabilities are centrally managed and are not reviewed at the segment level by the CEO. The Company follows the same accounting policies for the segments as those described in Notes 2 – Basis of presentation, 3 – Recent accounting pronouncements, and 10 - Revenue.

 

Information by operating segments (with the exception of disaggregated revenue, which is discussed in Note 10 - Revenue), which is regularly reported to the CEO is as follows (Dollar amounts in thousands of U.S. dollars):

 

 

 

  

  

(b)

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

 

 

(c)

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

 

 

(d)

Valuation and qualifying accounts (Dollar amounts in thousands of U.S. dollars):

 

 

 

 

14. Stockholders’ Equity:

 

The following table summarizes stockholders' equity transactions for the three-month period ended March 31, 2019 (Dollar amounts in thousands of U.S. dollars): 

 

 

2019 Stock Buyback Program

 

On February 13, 2019, the Company announced that its Board of Directors has approved a stock buyback program to repurchase up to $40 million of its common stock in the open market. Purchases are to be made exclusively through the facilities of the NASDAQ Capital Market. The $40 million buyback program commenced on February 14, 2019 and is expected to terminate on February 13, 2020. During the three months ended March 31, 2019, the Company did not repurchase any shares under this program.

 

2018 Stock Buyback Program

 

On February 14, 2018, the Company announced that its Board of Directors has approved a stock buyback program to repurchase up to $40 million of its common stock in the open market. Purchases were to be made exclusively through the facilities of the NASDAQ Capital Market. The stock buyback program commenced on February 14, 2018 and terminated on February 13, 2019.  During the three months ended March 31, 2019 and the three months ended March 31, 2018, the Company did not repurchase any shares under this program.

 

2017 Stock Buyback Program

 

On March 1, 2017, The Company announced that its Board of Directors had approved a stock buyback program to repurchase up to $40 million of its common stock in the open market.  Purchases were to be made exclusively through the facilities of the NASDAQ Capital Market. The stock buyback program commenced on March 1, 2017 and terminated on February 14, 2018.  During the three months ended March 31, 2018, the Company did not repurchase any shares under this program.

 

 

15. Share-based payments

 

Stock options

 

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

 

Details of stock option transactions for the three months ended March 31, 2019 and March 31, 2018 are as follows (Dollar amounts in thousands of U.S. dollars, except per share amounts):

 

   

 

As of March 31, 2019, the exercise prices, weighted average remaining contractual life and intrinsic values of outstanding options were as follows (Dollar amounts in thousands of U.S. dollars, except per share amounts):

 

  

Total unrecognized compensation cost relating to unvested stock options at March 31, 2019, prior to the consideration of expected forfeitures, is approximately $5.9 million and is expected to be recognized over a weighted average period of 2.4 years.

  

The Company recorded stock-based compensation of $0.5 million for the three months ended March 31, 2019, and $0.6 million for the three months ended March 31, 2018.

 

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

 

 

16. Fair value measurement:

 

For financial assets and liabilities recorded in our financial statements at fair value we utilize a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company's own assumptions used to measure assets and liabilities at fair value. A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

The following table provides a summary of the fair values of the Company's derivative instrument assets and liabilities measured at fair value on a recurring basis at March 31, 2019 (Dollar amounts in thousands of U.S. dollars):

 

 

 

 

 

17. Contingencies

 

From time to time, the Company has legal claims and lawsuits in connection with its ordinary business operations. The Company vigorously defends such claims. While the final outcome with respect to any actions or claims outstanding or pending as of March 31, 2019 cannot be predicted with certainty, management does not believe that the resolution of these claims, individually or in the aggregate, will have a material adverse effect on the Company's financial position.

 

 

 

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