Tucows Reports Continuing Strong Financial Results for

TORONTO, Nov. 07, 2016 (GLOBE NEWSWIRE) -- Tucows Inc. (NASDAQ:TCX) (TSX:TC), a provider of network access, domain names and other Internet services, today reported its financial results for the third quarter ended September 30, 2016. All figures are in U.S. dollars.

Summary Financial Results
(In Thousands of US Dollars, Except Per Share Data)

	3 Months Ended September 30					9 Months Ended September 30
	2016 (Unaudited)	2015 (Unaudited)	% Change			2016 (Unaudited)	2015 (Unaudited)	% Change
Net revenue	49,064	44,268		11	%	141,014	126,985		11	%
Net income	4,741	3,159		50	%	13,250	8,278		60	%
Net earnings per common share	0.45	0.29		55	%	1.26	0.75		68	%
Adjusted EBITDA¹	8,575	5,800		48	%	22,798	15,439		48	%
Net cash provided by operating activities	5,001	6,783		-26	%	12,727	11,957		6	%

This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table. Tucows has revised its definition of Adjusted EBITDA as detailed in the description below and the table reconciling Adjusted EBITDA to GAAP net income.

Summary of Revenues and Gross Margin
(In Thousands of US Dollars)

	Revenue		Gross Margin
	3 Months ended September 30		3 Months ended September 30
	2016 (Unaudited)	2015 (Unaudited)	2016 (Unaudited)			2015 (Unaudited)
Network Access Services:
Mobile Services	18,375	15,359		9,288			6,583
Other Services	878	916		376			542
Total Network Access Services	19,253	16,275		9,664			7,125

Domain Services:
Wholesale
Domain Services	22,956	21,124		4,021			3,642
Value Added Services	2,227	2,400		1,764			1,913
Total Wholesale	25,183	23,524		5,785			5,555

Retail	3,721	3,220		1,993			1,790
Portfolio	907	1,248		776			1,079
Total Domain Services	29,811	27,992		8,554			8,424

Network Expenses:
Network, other costs	─	─		(1,288	)		(1,421	)
Network, depreciation and amortization costs	─	─		(292	)		(336	)
Total Network expenses	─	─		(1,580	)		(1,757	)

Total revenue/gross margin	49,064	44,268		16,638			13,792

“Continuing growth in both Ting Mobile and our Domain Services business propelled Tucows to a record quarter for both the top and bottom lines,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “We continue to reap the benefits of the significant operating leverage in the business. Overall revenue was up 11% year-over-year, while net income grew 50% to a record $4.7 million, or $0.45 per share, and adjusted EBITDA¹ increased 48% to a record $8.6 million.”

“As Ting Mobile and Domain Services continue to drive our near-term financial performance, Ting Internet takes positive steps every day toward future contribution to our business. In Q2, we expanded our fiber network in Charlottesville, Virginia, began construction in Holly Springs, North Carolina and saw Westminster, Maryland launch the next wave of construction on its municipal fiber network. We also announced that Centennial, Colorado would be our next and largest Ting town to date, with a population over 100,000, and began taking pre-orders there immediately.”

Net revenue for the third quarter of 2016 increased 11% to a record $49.1 million from $44.3 million for the third quarter of 2015.

Net income for the third quarter of 2016 increased to a record $4.7 million, or $0.45 per share, from $3.2 million, or $0.29 per share, for the third quarter of 2015. Adjusted EBITDA¹ for the third quarter of 2016 increased to $8.6 million from $5.8 million for the third quarter of 2015.

Cash and cash equivalents at the end of the third quarter of 2016 were $10.5 million compared with $5.9 million at the end of the second quarter of 2016 and $11.9 million at the end of the third quarter of 2015. The increase relative to the second quarter of 2016 was primarily the result of cash provided by operating activities of $5.0 million, as well as an increase in the amount outstanding on the bank loan of $1.9 million, which partially offset by a further investment of $2.1 million in property and equipment, primarily for the continued build out of the Ting Internet footprint.

NOTES:

1. Adjusted EBITDA

Tucows reports all financial information required 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, the Company 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 the Company believes that the non-GAAP information enhances investors' overall understanding of our financial performance.

The Company believes that the provision of this supplemental non-GAAP measure allows investors to evaluate the operational and financial performance of the Company’s core business using similar evaluation measures to those used by management. The Company uses adjusted EBITDA to measure its performance and prepare its budgets. Since adjusted EBITDA is a non-GAAP financial performance measure, the Company’s 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. 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. The Company endeavors 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 U.S. 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.

The Company’s adjusted EBITDA definition excludes depreciation, amortization of intangible assets, income tax provision, interest expense, interest income, stock-based compensation, asset impairment, gains and losses from unrealized foreign currency transactions and infrequently occurring items. Gains and losses from unrealized foreign currency transactions removes the unrealized effect of the change in the mark-to-market values on outstanding unhedged foreign currency contracts, as well as the unrealized effect from the translation of monetary accounts denominated in non-U.S. dollars to U.S. dollars.

Prior year Adjusted EBITDA amounts presented herein have been recast to reflect adjusted EBITDA definitional changes described in the Company’s Form 10-Q Quarterly Report for the three months ended September 30, 2016.

During the financial statement close for the three months ended September 30, 2016, the Company identified an immaterial error that affects the classification of certain marketing program costs. Prior to the third quarter of fiscal 2016, the Company recorded the cost for certain marketing credits as Sales and marketing expense which should have been recorded as a reduction in Net revenue. The discussion presented here correctly reflect these marketing credits as a reduction in Net Revenues for all current and comparative periods. This resulted in a decrease in Net Revenues, and a corresponding decrease in Sales and marketing expenses of $0.3 million and $0.9 million for the three months and nine months ended September 30, 2015. For the nine months ended September 30, 2016, Net revenues and Sales and marketing expenses reflect a reduction of $1.1 million for the reclassification of credits for the first six months of fiscal 2016.

Conference Call
Tucows management will host a conference call today, Monday, November 7, 2016 at 5:00 p.m. (ET) to discuss the Company’s third quarter 2016 results. Participants can access the conference call by dialing 1-888-231-8191 or 647-427-7450 or via the Internet at http://www.tucows.com/investors.

For those unable to participate in the conference call at the scheduled time, it will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. To access the archived conference call by telephone, dial 416-849-0833 or 1-855-859-2056 and enter the passcode 3037132 followed by the pound key. The telephone replay will be available until Monday, November 14, 2016 at midnight. To access the archived conference call as an MP3 via the Internet, go to http://www.tucows.com/investors.

About Tucows
Tucows is a provider of network access, domain names and other Internet services. Ting (https://ting.com) delivers mobile phone service and fixed Internet access with outstanding customer support. OpenSRS (http://opensrs.com) manages nearly 15 million domain names and millions of value-added services through a global reseller network of over 13,000 web hosts and ISPs. Hover (http://hover.com) makes it easy for individuals and small businesses to manage their domain names and email addresses. More information can be found on Tucows’ corporate website (http://tucows.com).

Tucows Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)

	September 30,			December 31,
		2016			2015
	(unaudited)			(unaudited)

Assets

Current assets:
Cash and cash equivalents	$	10,498,296		$	7,723,253
Accounts receivable		11,606,638			7,171,388
Inventory		1,502,433			903,775
Prepaid expenses and deposits		6,007,725			5,067,790
Prepaid domain name registry and ancillary services fees, current portion		49,735,226			44,708,041
Income taxes recoverable		1,743,308			2,292,915
Total current assets		81,093,626			67,867,162

Prepaid domain name registry and ancillary services fees, long-term portion		11,184,655			11,040,929
Property and equipment		9,617,147			7,126,676
Deferred tax asset		5,355,575			7,621,092
Intangible assets		20,091,795			14,469,677
Goodwill		21,005,143			21,005,143
Total assets	$	148,347,941		$	129,130,679


Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable	$	4,036,804		$	4,166,135
Accrued liabilities		4,426,617			5,855,686
Customer deposits		5,227,879			5,136,909
Derivative instrument liability, current portion		85,769			2,027,086
Deferred rent, current portion		20,854			19,463
Loan payable, current portion		1,933,110			3,500,000
Deferred revenue, current portion		63,120,230			56,646,390
Accreditation fees payable, current portion		520,033			465,300
Income taxes payable		1,447,970			444,053
Total current liabilities		80,819,266			78,261,022

Deferred revenue, long-term portion		15,246,462			14,947,639
Accreditation fees payable, long-term portion		114,962			118,480
Deferred rent, long-term portion		129,920			100,864
Loan payable, long-term portion		8,547,808			-
Other liabilities		1,073,500			1,459,960
Deferred tax liability		4,827,192			4,876,691

Redeemable non-controlling interest		3,073,642			3,036,598

Stockholders' equity:
Preferred stock - no par value, 1,250,000 shares authorized; none issued and outstanding		-			-
Common stock - no par value, 250,000,000 shares authorized; 10,448,283 shares issued and outstanding as of September 30, 2016 and 10,685,599 shares issued and outstanding as of December 31, 2015		14,401,326			14,530,633
Additional paid-in capital		2,564,965			8,526,395
Retained earnings		17,595,108			4,381,849
Accumulated other comprehensive income (loss)		(46,210	)		(1,109,452	)
Total stockholders' equity		34,515,189			26,329,425
Total liabilities and stockholders' equity	$	148,347,941		$	129,130,679

Tucows Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)

		Three months ended September 30,							Nine months ended September 30,
			2016			2015				2016			2015
		(unaudited)							(unaudited)

Net revenues	$		49,064,327			44,267,645				141,014,329		$	126,985,121

Cost of revenues:
Cost of revenues			30,846,668			28,718,613				89,445,493			83,767,472
Network expenses (*)			1,287,620			1,421,279				3,925,377			4,138,213
Depreciation of property and equipment			278,746			324,166				976,419			803,737
Amortization of intangible assets			13,421			11,532				36,485			26,988
Total cost of revenues			32,426,455			30,475,590				94,383,774			88,736,410

Gross profit			16,637,872			13,792,055				46,630,555			38,248,711

Expenses:
Sales and marketing (*)			5,479,445			4,517,666				15,174,619			12,548,415
Technical operations and development (*)			1,270,107			1,101,581				3,445,118			3,405,052
General and administrative (*)			2,166,217			2,607,917				7,497,752			7,826,405
Depreciation of property and equipment			178,687			63,790				328,877			185,074
Amortization of intangible assets			279,126			56,997				613,041			167,209
Impairment of indefinite life intangible assets			2,866			18,550				27,745			68,848
Loss (gain) on currency forward contracts			22,475			352,738				(96,993	)		681,988
Total expenses			9,398,923			8,719,239				26,990,159			24,882,991

Income from operations			7,238,949			5,072,816				19,640,396			13,365,720

Other income (expenses):
Interest expense, net			(135,168	)		(78,959	)			(301,868	)		(161,136	)
Other income			130,147			-				387,787			-
Total other income (expenses)			(5,021	)		(78,959	)			85,919			(161,136	)

Income before provision for income taxes			7,233,928			4,993,857				19,726,315			13,204,584

Provision for income taxes			2,492,649			1,834,400				6,476,012			4,926,189
Net income before redeemable non-controlling interest			4,741,279			3,159,457				13,250,303			8,278,395

Redeemable non-controlling interest			(254,101	)		(91,283	)			(698,583	)		(162,750	)

Net (earnings) loss attributable to redeemable non-controlling interest			254,101			91,283				698,583			162,750

Net income for the period			4,741,279			3,159,457				13,250,303			8,278,395

Other comprehensive income (loss), net of tax
Unrealized income (loss) on hedging activities			(58,821	)		(724,336	)			516,406			(1,723,247	)
Net amount reclassified to earnings			131,912			364,330				546,836			1,152,359
Other comprehensive income (loss) net of tax of 41,580 and $198,664 for the three months ended September 30, 2016 and September 30, 2015 and $585,943 and 321,879 for the nine months ended September 30, 2016 and September 30, 2015			73,091			(360,006	)			1,063,242			(570,888	)

Comprehensive income, net of tax for the period	$		4,814,370		$	2,799,451		$		14,313,545		$	7,707,507

Basic earnings per common share	$		0.45		$	0.29		$		1.26		$	0.75

Shares used in computing basic earnings per common share			10,432,763			10,984,869				10,549,056			11,057,634

Diluted earnings per common share	$		0.45		$	0.28		$		1.23		$	0.72

Shares used in computing diluted earnings per common share			10,619,005			11,372,682				10,736,775			11,469,657



(*) Stock-based compensation has been included in expenses as follows:
Network expenses	$		4,920		$	7,221		$		16,784		$	22,264
Sales and marketing	$		60,832		$	45,385		$		176,095		$	144,408
Technical operations and development	$		23,512		$	27,364		$		74,913		$	84,646
General and administrative	$		106,175		$	48,605		$		318,062		$	126,910

Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)

		Three months ended September 30,							Nine months ended September 30,
			2016			2015				2016			2015
Cash provided by:		(unaudited)							(unaudited)
Operating activities:
Net income for the period	$		4,741,279			3,159,457				13,250,303			8,278,395
Items not involving cash:
Depreciation of property and equipment			457,433			387,956				1,305,296			988,811
Amortization of debt discount and issuance costs			8,298			-				8,298			-
Amortization of intangible assets			292,547			68,529				649,526			194,197
Impairment of indefinite life intangible asset			2,866			18,550				27,745			68,848
Deferred income taxes (recovery)			926,733			(53,085	)			1,630,076			(1,019,254	)
Amortization of deferred rent			13,783			7,370				30,447			17,917
Disposal of domain names			4,760			2,866				25,581			20,551
Other income			(128,820	)		-				(386,460	)		-
Loss (gain) on change in the fair value of forward contracts			(20,114	)		99,052				(292,133	)		160,394
Stock-based compensation			195,439			128,575				585,854			378,228
Change in non-cash operating working capital:
Accounts receivable			(1,623,719	)		262,149				(4,435,250	)		(994,889	)
Inventory			(217,741	)		(123,047	)			(598,658	)		(281,491	)
Prepaid expenses and deposits			419,939			1,000,287				(939,935	)		(892,105	)
Prepaid domain name registry and ancillary services fees			(1,271,948	)		149,905				(5,170,911	)		(2,068,871	)
Income taxes recoverable			363,244			1,152,410				1,553,524			1,935,426
Accounts payable			681,303			195,002				(1,993	)		202,578
Accrued liabilities			(581,495	)		406,920				(1,429,069	)		1,517,453
Customer deposits			(943,579	)		(199,695	)			90,970			253,223
Deferred revenue			1,666,291			140,850				6,772,663			3,185,946
Accreditation fees payable			14,059			(20,621	)			51,215			11,425
Net cash provided by operating activities			5,000,558			6,783,430				12,727,089			11,956,782

Financing activities:
Proceeds received on exercise of stock options			48,376			189,914				107,672			737,369
Payment of tax obligations resulting from net exercise of stock options			(76,537	)		-				(318,770	)		-
Excess tax benefits from share-based compensation expense			268,565			312,091				714,764			1,400,793
Repurchase of common stock			-			(9,977,495	)			(7,180,257	)		(18,179,176	)
Proceeds received on loan payable			10,989,583			-				16,989,583			3,500,000
Repayment of loan payable			(9,062,500	)		-				(9,500,000	)		-
Payment of loan payable costs			(383,463	)		-				(516,963	)		-
Net cash provided by (used in) financing activities			1,784,024			(9,475,490	)			296,029			(12,541,014	)

Investing activities:
Additions to property and equipment			(2,091,368	)		(710,342	)			(3,923,105	)		(2,051,124	)
Gross proceeds from the waiver of rights to .online registry			-			-				-			6,619,832
Remaining payment for the acquisition of Ting Virginia, LLC., net of cash of $21,423			-			-				-			(357,493	)
Acquisition of intangible assets			(74,400	)		-				(6,324,970	)		-
Net cash provided by (used in) investing activities			(2,165,768	)		(710,342	)			(10,248,075	)		4,211,215

Increase in cash and cash equivalents			4,618,814			(3,402,402	)			2,775,043			3,626,983

Cash and cash equivalents, beginning of period			5,879,482			15,300,762				7,723,253			8,271,377
Cash and cash equivalents, end of period	$		10,498,296		$	11,898,360		$		10,498,296		$	11,898,360

Supplemental cash flow information:
Interest paid	$		93,560			78,988				260,506			175,290
Income taxes paid, net	$		927,826			512,954				2,507,699			2,457,225

Supplementary disclosure of non-cash investing and financing activities:
Property and equipment acquired during the period not yet paid for	$		89,860			63,499				89,860			63,499

Tucows Inc.
Reconciliation of Net income to Adjusted EBITDA
(In Thousands of US Dollars)

		Three months ended September 30,						Nine months ended September 30,
			2016			2015			2016			2015
		(unaudited)						(unaudited)

Net income for the period	$		4,741		$	3,159	$		13,250		$	8,278
Depreciation of property and equipment			457			388			1,305			989
Amortization of intangible assets			293			69			650			194
Impairment of intangible assets			3			19			28			69
Interest expense, net			135			79			302			161
Provision for income taxes			2,493			1,834			6,476			4,926
Stock-based compensation			195			129			586			378
Unrealized loss (gain) on change in fair value of forward contracts			(20	)		99			(292	)		160
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities			278			24			493			284

Adjusted EBITDA	$		8,575		$	5,800	$		22,798		$	15,439

This release includes forward-looking statements as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995 including statements regarding our expectations regarding our future financial results and, including, without limitation, our expectation regarding our ability to manage realized gains/losses from foreign currency contracts. 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. Information about other potential factors that could affect Tucows’ business, results of operations and financial condition is included in the Risk Factors sections of Tucows’ filings with the Securities and Exchange Commission. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All forward-looking statements are based on information available to Tucows as of the date they are made. Tucows assumes no obligation to update any forward-looking statements, except as may be required by law.

TUCOWS® is a registered trademark of Tucows Inc. or its subsidiaries. All other trademarks and service marks are the properties of their respective owners.

Tucows Reports Continuing Strong Financial Results for Third Quarter of 2016

EPS Increases 55% Year-Over-Year to a Record $0.45

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