TORONTO, Nov. 07, 2018 (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, 2018. All figures are in U.S. dollars.

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

 3 Months Ended September 309 Months Ended September 30
  
2018
(Unaudited)
2017
(Unaudited)
% Change2018
(Unaudited)
2017
(Unaudited)
% Change
Net revenue83,51985,008-2%260,401238,8009%
Net income5,3463,44055%12,69811,12814%
Basic Net earnings per common share0.500.3352%1.201.0613%
Adjusted EBITDA111,8589,36827%33,42526,08228%
Net cash provided by operating activities11,2147,28254%26,54117,81449%
  1. This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.

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

 RevenueGross Margin
 3 Months ended
September 30 
3 Months ended
September 30
 2018
(Unaudited)
2017
(Unaudited)
2018
(Unaudited)
2017
(Unaudited)
Network Access Services:
Mobile Services22,54621,74911,147 9,384 
Other Services2,0331,4421,161 847 
Total Network Access Services24,57923,19112,308 10,231 
     
Domain Services:
Wholesale    
Domain Services45,07047,7707,656 5,477 
Value Added Services4,5414,2033,734 3,516 
Total Wholesale49,61151,97311,390 8,993 
     
Retail8,7318,8734,266 4,262 
Portfolio598971450 791 
Total Domain Services58,94061,81716,106 14,046 
     
Network Expenses:

Network, other costs--(2,315)(2,461)
Network, depreciation and amortization costs--(1,838)(1,322)
Total Network expenses--(4,153)(3,783)
     
Total revenue/gross margin83,51985,00824,261 20,494 

“Our third quarter results again demonstrate how the consistent performance and cash flow generation of our Domains and Ting Mobile businesses are enabling us to invest in the build out of the Ting Internet footprint for our next phase of outsized growth,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Gross margin contribution expanded in each of our businesses, with Domains benefiting from normalized margins following the Enom acquisition and Network Access benefiting from Ting Mobile’s lower costs, a larger subscriber base and higher usage per subscriber, as we continue to reposition our offering for renewed growth.  Importantly, Ting Internet continues to steadily advance its network builds, grow its number of serviceable addresses, and expand its subscriber base.  We now have five fully active towns where we are installing, activating and supporting customers every day.”

Financial Results

Net revenue for the third quarter of 2018 was $83.5 million compared with $85.0 million for the third quarter of 2018, with the decrease due primarily to acceleration of revenue in the first quarter of 2018 related to the bulk transfer of 2.65 million very low margin domain names, which was partially offset by the continued growth of Ting Mobile and a bulk transfer of 0.2 million very low margin domains names in the third quarter of 2018.  Excluding the impact of these of bulk transfers, net revenue for the third quarter of 2018 increased 3.5% compared to the third quarter of 2017.

Net income for the third quarter of 2018 increased 55% to $5.3 million, or $0.50 per share from $3.4 million, or $0.33 per share, for the third quarter of 2017.

Adjusted EBITDA1 for the third quarter of 2018 increased 27% to $11.9 million from $9.4 million for the third quarter of 2017. 

Cash and cash equivalents at the end of the third quarter of 2018 was $10.8 million compared with $11.2 million at the end of the second quarter of 2018 and $12.5 million at the end of the third quarter of 2017.

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 discloses and discusses a non-GAAP financial measure, adjusted EBITDA, in press releases and 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, including acquisition and transitions costs. 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.

The following table reconciles net income to adjusted EBITDA (dollars in thousands):

 3 months ended September 309 months ended September 30
   
 2018
(unaudited)
2017
(unaudited)
2018
(unaudited)
2017
(unaudited)
Net income for the period 5,346 3,440 12,69811,128 
Depreciation of property and equipment1,445 978 4,0072,614 
Amortization of intangible assets2,296 2,245 6,9536,070 
Impairment of intangible assets- 2 -2 
Interest expense, net914 864 2,7612,703 
Provision for income taxes1,370 1,823 3,7812,781 
Stock-based compensation711 203 1,904834 
Unrealized loss (gain) on change in fair value of forward contracts(35)1 7(37)
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities(269)(427)191(761)
Acquisition and transition costs*80 239 1,123748 
     
Adjusted EBITDA11,858 9,368 33,42526,082 
*Acquisition and other costs represents transaction-related expenses, transitional expenses, such as duplicative post-acquisition expenses, related to our acquisition of Enom in January 2017.  Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments.

Conference Call
As per its new quarterly conference call format initiated last quarter, concurrent with the dissemination of this news release, management’s pre-recorded remarks discussing the quarter and outlook for the Company have been posted to the Tucows web site at http://www.tucows.com/investors/financials.  In lieu of a live question and answer period, for the next five days (until Monday, November 12), shareholders, analysts and prospective investors can submit questions to Tucows’ management at ir@tucows.com. Management will post responses to questions of general interest to the Company’s web site at http://www.tucows.com/investors/financials/ on Friday, November 16 at approximately 4:00 p.m. ET.  All questions will receive a response, however, questions of a more specific may be responded to directly.

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) and Enom (http://www.enom.com) manage a combined 23 million domain names and millions of value-added services through a global reseller network of over 38,000 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 thousands of U.S. dollars) 
      
  September 30, December 31, 
   2018  2017 
  (unaudited) (unaudited) 
      
Assets     
      
Current assets:     
Cash and cash equivalents $  10,775  $  18,049 
Accounts receivable  11,529   12,376 
Inventory  3,140   2,944 
Prepaid expenses and deposits  14,554   14,186 
Prepaid domain name registry and ancillary services fees, current portion  91,590   103,302 
Income taxes recoverable  3,109   3,004 
Total current assets  134,697   153,861 
      
Prepaid domain name registry and ancillary services fees, long-term portion  19,636   23,701 
Property and equipment  40,220   24,620 
Contract costs  1,383   - 
Intangible assets  51,505   58,414 
Goodwill  90,054   90,054 
Total assets $  337,495  $  350,650 
      
      
Liabilities and Stockholders' Equity     
      
Current liabilities:     
Accounts payable $  8,242  $  7,026 
Accrued liabilities  6,877   6,412 
Customer deposits  11,885   15,255 
Derivative instrument liability  62   - 
Deferred rent, current portion  21   21 
Loan payable, current portion  17,810   18,290 
Deferred revenue, current portion  120,459   129,155 
Accreditation fees payable, current portion  1,035   1,175 
Income taxes payable  1,128   1,226 
Total current liabilities  167,519   178,560 
      
Deferred revenue, long-term portion  28,033   31,427 
Accreditation fees payable, long-term portion  260   289 
Deferred rent, long-term portion  121   130 
Loan payable, long-term portion  46,605   58,634 
Deferred Gain  258   429 
Deferred tax liability  19,265   19,834 
      
Redeemable non-controlling interest  -   1,136 
      
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; 10,615,566 shares issued and outstanding as of September 30, 2018 and 10,583,879 shares issued and outstanding as of December 31, 2017  15,635   15,368 
Additional paid-in capital  3,462   2,167 
Retained earnings  56,373   42,676 
Accumulated other comprehensive income  (36)  - 
Total stockholders' equity  75,434   60,211 
Total liabilities and stockholders' equity $  337,495  $  350,650 
      

 

Tucows  Inc.  
Consolidated Statements of Operations  
(Dollar amounts in thousands of U.S. dollars)  
         
  Three months ended September 30, 
  Nine months ended September 30, 
  2018 2017 2018 2017 
           
  (unaudited) (unaudited)
         
Net revenues$  83,519 $  85,008 $  260,401 $  238,800 
         
Cost of revenues:        
Cost of revenues   55,105    60,731    178,578    169,488 
Network expenses (*)   2,315    2,461    7,590    7,064 
Depreciation of property and equipment   1,339    823    3,698    2,128 
Amortization of intangible assets   499    499    1,497    1,335 
Total cost of revenues 59,258  64,514  191,363  180,015 
         
Gross profit 24,261  20,494  69,038  58,785 
         
Expenses:        
Sales and marketing (*)   8,412    7,384    24,629    22,051 
Technical operations and development (*)   2,207    1,910    6,657    5,402 
General and administrative (*)   4,120    3,381    12,906    10,124 
Depreciation of property and equipment   106    155    309    486 
Amortization of intangible assets   1,797    1,746    5,456    4,735 
Impairment of indefinite life intangible assets -  2  -  2 
Loss (gain) on currency forward contracts   (27)   (54)   22    (115)
Total expenses 16,615  14,524  49,979  42,685 
         
Income from operations 7,646  5,970  19,059  16,100 
         
Other income (expenses):        
Interest expense, net (914) (864) (2,761) (2,703)
Other income, net (16) 157  181  512 
Total other income (expenses) (930) (707) (2,580) (2,191)
         
Income before provision for income taxes 6,716  5,263  16,479  13,909 
         
Provision for income taxes 1,370  1,823  3,781  2,781 
Net income before redeemable non-controlling interest 5,346  3,440  12,698  11,128 
         
Redeemable non-controlling interest -    (69)   (26)   (312)
         
Net income attributable to redeemable non-controlling interest -  69  26  312 
Net income for the period 5,346  3,440  12,698  11,128 
         
Other comprehensive income, net of tax        
Unrealized income (loss) on hedging activities 144  309  (112) 638 
Net amount reclassified to earnings 63  (318) 76  (416)
Other comprehensive income (loss) net of tax of $ (59) and $ 5 for the three months ended September 30, 2018 and  September 30, 2017, $ 19 and $ (127) for the nine months ended September 30, 2018 and  September 30, 2017 207  (9) (36) 222 
         
Comprehensive income, net of tax for the period $ 5,553  $ 3,431  $ 12,662  $ 11,350 
         
Basic earnings per common share$0.50 $0.33 $1.20 $1.06 
         
Shares used in computing basic earnings per common share 10,611,579  10,564,311  10,599,243  10,522,841 
         
Diluted earnings per common share$0.50 $0.32 $1.18 $1.03 
         
Shares used in computing diluted earnings per common share 10,794,297  10,785,342  10,795,668  10,785,050 
         
         
         
(*) Stock-based compensation has been included in expenses as follows:        
Network expenses$70 $52 $153 $60 
Sales and marketing$307 $197 $739 $318 
Technical operations and development$150 $96 $501 $215 
General and administrative$184 $(143)$511 $241 
         

 

Tucows  Inc.   
Consolidated Statements of Cash Flows   
(Dollar amounts in thousands of U.S. dollars)   
         
  Three months ended September 30, 
  Nine months ended September 30, 
  2018  2017 2018 2017
         
Cash provided by:  (unaudited)  (unaudited)
Operating activities:        
Net income for the period  $ 5,346 $3,440  $ 12,698 $11,128 
Items not involving cash:        
Depreciation of property and equipment 1,445  978  4,007  2,614 
Loss on write off of property and equipment -  8  -  17 
Amortization of debt discount and issuance costs 72  57  211  204 
Amortization of intangible assets 2,296  2,245  6,953  6,070 
Impairment of indefinite life intangible asset -  2  -  2 
Change in capitalized contract costs (29) -  21  - 
Deferred income taxes (recovery) (369) (1,445) (861) (3,011)
Excess tax benefits on share-based compensation expense (191) (444) (532) (2,615)
Amortization of deferred rent (5) -  (9) 6 
Loss on disposal of domain names 5  8  70  25 
Other income -  (129) (171) (386)
Loss (gain) on change in the fair value of forward contracts (30) 1  13  (37)
Stock-based compensation 711  203  1,904  834 
Change in non-cash operating working capital:        
Accounts receivable 685  533  847  (332)
Inventory 108  (643) (196) (1,739)
Prepaid expenses and deposits 874  202  (368) (2,169)
Prepaid domain name registry and ancillary services fees 4,229  3,084  15,777  570 
Income taxes recoverable (137) 2,225  293  1,815 
Accounts payable 778  (644) 1,048  (4,682)
Accrued liabilities 107  981  465  994 
Customer deposits (1,049) (1,905) (3,370) 1,163 
Deferred revenue (3,559) (1,425) (12,090) 7,543 
Accreditation fees payable (73) (50) (169) (200)
Net cash provided by operating activities 11,214  7,282  26,541  17,814 
         
Financing activities:        
Proceeds received on exercise of stock options 23  68  62  173 
Payment of tax obligations resulting from net exercise of stock options (116) (117) (404) (1,438)
Proceeds received on loan payable -  -  2,500  86,998 
Repayment of loan payable (4,387) (4,573) (15,212) (15,403)
Payment of loan payable costs (4) (16) (8) (620)
Net cash (used in) provided by financing activities (4,484) (4,638) (13,062) 69,710 
         
Investing activities:        
Additions to property and equipment (7,003) (2,859) (19,439) (9,461)
Acquisition of a portion of the minority interest in Ting Virginia, LLC -  -  (1,200) (2,000)
Acquisition of Enom Incorporated, net of cash -  -  -  (76,237)
Acquisition of intangible assets (113) (2,384) (114) (2,384)
Net cash used in investing activities (7,116) (5,243) (20,753) (90,082)
         
Decrease in cash and cash equivalents (386) (2,599) (7,274) (2,558)
         
Cash and cash equivalents, beginning of period   11,161    15,146    18,049    15,105 
Cash and cash equivalents, end of period$10,775 $12,547 $10,775 $12,547 
         
Supplemental cash flow information:        
Interest paid$919  $ 870 $2,781  $ 2,717 
Income taxes paid, net$1,793  $ 1,308 $5,370  $ 6,313 
         
Supplementary disclosure of non-cash investing and financing activities:        
Property and equipment acquired during the period not yet paid for$382 $186 $382 $186 
         


Reconciliation of Net income to Adjusted EBITDA 
(In Thousands of US Dollars)  
(unaudited)  
          
          
   Three months ended September 30,  Nine months ended September 30,  
   2018 (unaudited) 2017 (unaudited) 2018 (unaudited) 2017 (unaudited) 
           
Net income for the period $  5,346 $  3,440    12,698$  11,128  
Depreciation of property and equipment    1,445    978    4,007   2,614  
Amortization of intangible assets    2,296    2,245    6,953   6,070  
Impairment of intangible assets   -     2    -    2  
Interest expense, net   914    864    2,761   2,703  
Provision for income taxes    1,370    1,823    3,781   2,781  
Stock-based compensation   711    203    1,904   834  
Unrealized loss (gain) on change in fair value of forward contracts   (35)   1    7   (37) 
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities   (269)   (427)   191   (761) 
Acquisition and other costs1   80    239    1,123   748  
          
Adjusted EBITDA$  11,858 $  9,368    33,425$  26,082  
          
1Acquisition and other costs represents transaction-related expenses, transitional expenses, such as duplicative post-acquisition expenses, primarily related to our acquisition of eNom in January 2017. Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments.
 

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 realize synergies from the Enom acquisition and our expectation for growth of Ting Internet. 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, Ting, OpenSRS, Enom and Hover are registered trademarks of Tucows Inc. or its subsidiaries.

Contact:
Lawrence Chamberlain
Loderock Advisors
(416) 519-4196
lawrence.chamberlain@loderockadvisors.com