Reading Time: 8 minutes

TORONTO, May 07, 2020 (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 first quarter ended March 31, 2020. All figures are in U.S. dollars.

COVID-19:  Tucows shareholders and prospective investors are encouraged to read Tucows’ public statement regarding COVID-19, which is available here: https://bit.ly/2LavpOc.

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

  3 Months Ended March 31
2020
(Unaudited)
2019
(Unaudited)
% Change
Net revenue 83,985 78,953 6 %
Gross Profit 25,150 22,651 11 %
Net income 2,834 2,799 1 %
Basic Net earnings per common share 0.27 0.26 4 %
Adjusted EBITDA1,2 12,681 9,431 34 %
Net cash provided by operating activities 14,073 8,991 57 %

1.  This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.
2.  Adjusted EBITDA for the three-month period ended March 31, 2020 reflects the impact of the purchase price accounting adjustment related to the fair value write down of deferred revenue from the Ascio acquisition on March 18, 2019, which lowered Adjusted EBITDA by $0.1 million, compared to $0.2 million for the three-month period ended March 31, 2019.
   

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

  Revenue Gross Profit
  3 Months ended
March 31 
3 Months ended
March 31
  2020
(Unaudited)
2019
(Unaudited)
2020
(Unaudited)
2019
(Unaudited)
Network Access Services:
Mobile Services 20,148 20,809 10,291   10,066  
Other Services 4,308 2,443 2,592   1,374  
Total Network Access Services 24,456 23,252 12,883   11,440  
Domain Services:
Wholesale        
Domain Services 45,964 42,591 9,495   7,752  
Value Added Services 4,707 4,184 3,922   3,390  
Total Wholesale 50,671 46,775 13,417   11,142  
         
Retail 8,449 8,642 4,215   4,283  
Portfolio3 409 284 282   156  
Total Domain Services 59,529 55,701 17,914   15,581  
Network Expenses:
Network, other costs (2,416 ) (2,395 )
Network, depreciation and amortization costs (3,231 ) (1,975 )
Total Network expenses (5,647 ) (4,370 )
         
Total 83,985 78,953 25,150   22,651  

3.  During the first quarter of 2020, portfolio revenue consisted of individual sales from its surname portfolio following the sale of the Company’s remaining domain name portfolio in the fourth quarter of 2019. Going forward, portfolio revenue will only consist of surname portfolio sales.
   

“The first quarter was a very solid start to 2020, highlighted by year-over-year growth in revenue and gross profit of 6% and 11%, respectively, and cash flow from operations of more than $14 million,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Our Domains business continued to benefit from our focus on high-quality reseller customers, which contributed to more than a 20% year-over-year increase in gross margin in the Wholesale channel. In our Ting Mobile business, as expected we benefited from the improved economics of our carrier relationships.  And at Ting Internet, we continued to steadily expand the network, adding another new town, further expanding potential serviceable addresses, increasing the number of homes passed, adding new customers, and nearly doubling gross profit year-over-year with the contribution of the acquisition of Cedar Holdings, which we closed on January 1.”

Financial Results

Net revenue for the first quarter of 2020 increased 6% to $84.0 million from $79.0 million for the first quarter of 2019.

Net income for the first quarter of 2020 increased 1.3% to just over $2.8 million, or $0.27 per share, from just under $2.8 million, or $0.26 per share, for the first quarter of 2019. 

Adjusted EBITDA1 for the first quarter of 2020 increased 34% to $12.7 million from $9.4 million for the first quarter of 2019. Adjusted EBITDA for the first quarter of 2020 reflects a full quarter of contribution from the Ascio and Cedar Holdings acquisitions in March 2019 and January 2020, respectively.  

Cash and cash equivalents at the end of the first quarter of 2020 was $12.4 million compared with $20.4 million at the end of the fourth quarter of 2019 and $11.0 million at the end of the first quarter of 2019.

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 (net), accretion of contingent consideration, stock-based compensation, asset impairment, gains and losses from unrealized foreign currency transactions and infrequently occurring items, including acquisition and transition costs. Gains and losses from unrealized foreign currency transactions removes the unrealized effect of the change in the mark-to-market values on outstanding 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
March 31
  2020 (unaudited) 2019 (unaudited)
Net income for the period 2,834   2,799  
Depreciation of property and equipment 2,990   1,925  
Amortization of intangible assets 3,301   2,040  
Interest expense, net 1,150   972  
Accretion of contingent consideration 87    
Provision for income taxes 1,101   1,257  
Stock-based compensation 801   525  
Unrealized loss (gain) on change in fair value of forward contracts 348   (118 )
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities (42 ) (328 )
Acquisition and transition costs* 111   359  
     
Adjusted EBITDA 12,681   9,431  
*Acquisition and other costs represent transaction-related expenses, transitional expenses, such as duplicative post-acquisition expenses, primarily related to the Company’s acquisition of Ascio in March 2019 and Cedar in January 2020.  Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments.

Conference Call
Concurrent with the dissemination of this news release, management’s pre-recorded commentary 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 six days (until Wednesday, May 13), shareholders, analysts and prospective investors can submit questions to Tucows’ management at [email protected]. Management will post responses to questions of general interest to the Company’s web site at http://www.tucows.com/investors/financials/ on Wednesday, May 20 at approximately 4:00 p.m. ET. All questions will receive a response, however, questions of a more specific nature 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), Enom (http://www.enom.com) and Ascio (http://ascio.com) combined manage approximately 24 million domain names and millions of value-added services through a global reseller network of over 36,000 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.   March 31,   December 31,  
Consolidated Balance Sheets     2020       2019  
(Dollar amounts in thousands of U.S. dollars)   (unaudited)   (unaudited)  
           
Assets          
           
Current assets:          
Cash and cash equivalents   $ 12,446     $ 20,393  
Accounts receivable     12,480       14,564  
Inventory     2,553       3,457  
Prepaid expenses and deposits     13,464       13,478  
Derivative instrument asset, current portion     172       731  
Prepaid domain name registry and ancillary services fees, current portion     93,893       91,252  
Income taxes recoverable     1,460       1,800  
Total current assets     136,468       145,675  
           
Derivative instrument asset, long-term portion     370        
Prepaid domain name registry and ancillary services fees, long-term portion     18,127       17,915  
Property and equipment     94,289       82,121  
Right of use operating lease asset     11,463       11,335  
Contract costs     1,371       1,400  
Intangible assets     59,915       57,654  
Goodwill     115,837       109,818  
Total assets   $ 437,840     $ 425,918  
           
           
Liabilities and Stockholders’ Equity          
           
Current liabilities:          
Accounts payable   $ 8,996     $ 6,671  
Accrued liabilities     7,838       9,373  
Customer deposits     14,132       14,074  
Derivative instrument liability     1,718        
Operating lease liability, current portion     1,488       1,413  
Deferred revenue, current portion     126,152       123,101  
Accreditation fees payable, current portion     1,045       952  
Income taxes payable     1,302       1,324  
Total current liabilities     162,671       156,908  
           
Deferred revenue, long-term portion     26,493       26,202  
Accreditation fees payable, long-term portion     208       216  
Operating lease liability, long-term portion     9,293       9,424  
Loan payable, long-term portion     113,545       113,503  
Other long-term liability     3,152        
Deferred tax liability     27,122       25,471  
           
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; 10,562,774 shares issued and outstanding as of March 31, 2020 and 10,585,159 shares issued and outstanding as of December 31, 2019     18,751       16,633  
Additional paid-in capital           880  
Retained earnings     77,323       76,208  
Accumulated other comprehensive income (loss)     (718 )     473  
Total stockholders’ equity     95,356       94,194  
Total liabilities and stockholders’ equity   $ 437,840     $ 425,918  
           

 

Tucows Inc.  Three months ended March 31,
Consolidated Statements of Operations and Comprehensive Income   2020       2019  
(Dollar amounts in thousands of U.S. dollars)   (unaudited)     (unaudited)
           
Net revenues $ 83,985     $ 78,953  
           
Cost of revenues:          
Cost of revenues   53,188       51,932  
Network expenses (*)   2,416       2,395  
Depreciation of property and equipment   2,877       1,801  
Amortization of intangible assets   354       174  
Total cost of revenues   58,835       56,302  
           
Gross profit   25,150       22,651  
           
Expenses:          
Sales and marketing (*)   8,985       8,741  
Technical operations and development (*)   2,751       2,523  
General and administrative (*)   4,741       4,448  
Depreciation of property and equipment   113       124  
Amortization of intangible assets   2,947       1,866  
Loss (gain) on currency forward contracts   441       (79 )
Total expenses   19,978       17,623  
           
Income from operations   5,172       5,028  
           
Other income (expenses):          
Interest expense, net   (1,150 )     (972 )
Other income, net   (87 )      
Total other income (expenses)   (1,237 )     (972 )
           
Income before provision for income taxes   3,935       4,056  
           
Provision for income taxes   1,101       1,257  
Net income for the period   2,834       2,799  
           
Other comprehensive income, net of tax          
Unrealized income (loss) on hedging activities   (1,234 )     549  
Net amount reclassified to earnings   43       61  
Other comprehensive income (loss) net of tax (expense) recovery of $366 and ($194) for the three months ended March 31, 2020 and March 31, 2019   (1,191 )     610  
           
Comprehensive income, net of tax for the period $ 1,643     $ 3,409  
           
Basic earnings per common share $ 0.27     $ 0.26  
           
Shares used in computing basic earnings per common share   10,612,230       10,634,842  
           
Diluted earnings per common share $ 0.26     $ 0.26  
           
Shares used in computing diluted earnings per common share   10,713,678       10,835,897  
           
           
           
(*) Stock-based compensation has been included in expenses as follows:          
Network expenses $ 87     $ 57  
Sales and marketing $ 370     $ 196  
Technical operations and development $ 167     $ 117  
General and administrative $ 177     $ 155  
           

 

Tucows Inc.  Three months ended March 31, 
Consolidated Statements of Cash Flows   2020     2019  
(Dollar amounts in thousands of U.S. dollars)   (unaudited)   (unaudited)
         
Cash provided by:        
Operating activities:        
Net income for the period $ 2,834   $ 2,799  
Items not involving cash:        
Depreciation of property and equipment   2,990     1,925  
Loss on write off of property and equipment       22  
Amortization of debt discount and issuance costs   67     78  
Amortization of intangible assets   3,301     2,040  
Net amortization contract costs   29     19  
Accretion of contingent consideration   87      
Deferred income taxes (recovery)   (190 )   462  
Excess tax benefits on share-based compensation expense   (180 )   (356 )
Net Right of use operating assets/Operating lease liability   (179 )   (30 )
Loss on disposal of domain names   13     4  
Loss (gain) on change in the fair value of forward contracts   348     (118 )
Stock-based compensation   801     525  
Change in non-cash operating working capital:        
Accounts receivable   2,151     (1,188 )
Inventory   904     408  
Prepaid expenses and deposits   25     (390 )
Prepaid domain name registry and ancillary services fees   (2,853 )   (1,716 )
Income taxes recoverable   500     (1,236 )
Accounts payable   1,771     786  
Accrued liabilities   (1,831 )   1,321  
Customer deposits   58     287  
Deferred revenue   3,342     3,269  
Accreditation fees payable   85     80  
Net cash provided by operating activities   14,073     8,991  
         
Financing activities:        
Proceeds received on exercise of stock options   17     72  
Payment of tax obligations resulting from net exercise of stock options   (182 )   (339 )
Repurchase of common stock   (3,117 )    
Proceeds received on loan payable       32,940  
Repayment of loan payable       (4,600 )
Payment of loan payable costs   (25 )   (207 )
Net cash (used in) provided by financing activities   (3,307 )   27,866  
         
Investing activities:        
Additions to property and equipment   (9,943 )   (10,435 )
Acquisition of Cedar Holdings Group (net of cash of $66)   (8,770 )    
Acquisition of Ascio Technologies (net of cash of $1)       (28,024 )
Net cash used in investing activities   (18,713 )   (38,459 )
         
(Decrease) increase in cash and cash equivalents   (7,947 )   (1,602 )
         
Cash and cash equivalents, beginning of period   20,393     12,637  
Cash and cash equivalents, end of period $ 12,446   $ 11,035  
         
Supplemental cash flow information:        
Interest paid $ 1,154   $ 976  
Income taxes paid, net $ 956   $ 2,118  
         
Supplementary disclosure of non-cash investing and financing activities:        
Property and equipment acquired during the period not yet paid for $ 1,102   $ 392  
Fair value of shares issued for acquisition of Cedar Holdings Group $ 2,000   $  
Fair value of contingent consideration for acquisition of Cedar Holdings Group $ 3,065   $  
         

 

           
Tucows Inc.   Three months ended March 31,
Reconciliation of Net income to Adjusted EBITDA   2020       2019  
(Dollar amounts in thousands of U.S. dollars)   (unaudited)     (unaudited)
           
Net income for the period $ 2,834     $ 2,799  
Depreciation of property and equipment   2,990       1,925  
Amortization of intangible assets   3,301       2,040  
Interest expense, net   1,150       972  
Accretion of contingent consideration   87        
Provision for income taxes   1,101       1,257  
Stock-based compensation   801       525  
Unrealized loss (gain) on change in fair value of forward contracts   348       (118 )
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities   (42 )     (328 )
Acquisition and other costs1   111       359  
           
Adjusted EBITDA $ 12,681     $ 9,431  
           
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, Ascio in March 2019 and Cedar in January 2020. 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 expectations 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, Ascio and Hover are registered trademarks of Tucows Inc. or its subsidiaries.

Contact:
Lawrence Chamberlain
(416) 519-4196 | [email protected] 

Powered by WPeMatico