News Press Releases

Tucows Reports Continuing Strong Financial Results for First Quarter 2018

TCX | May 9, 2018

TORONTO, May 09, 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 first quarter ended March 31, 2018. All figures are in U.S. dollars.

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

	3 Months Ended March 31
	2018 (Unaudited)	2017 (Unaudited)	% Change
Net revenue	95,796	69,568	38%
Net income	3,744	2,446	53%
Basic Net earnings per common share	0.35	0.23	52%
Adjusted EBITDA¹	10,378	6,339	64%
Net cash provided by operating activities	9,573	2,402	299%

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)

	Revenue		Gross Margin
	3 Months ended March 31		3 Months ended March 31
	2018 (Unaudited)	2017 (Unaudited)	2018 (Unaudited)	2017 (Unaudited)
Network Access Services:
Mobile Services	21,872	17,963	10,606	8,396
Other Services	1,736	1,287	795	462
Total Network Access Services	23,608	19,250	11,401	8,857

Domain Services:
Wholesale
Domain Services	58,428	39,092	7,114	4,629
Value Added Services	4,435	3,908	3,577	3,332
Total Wholesale	62,862	43,000	10,691	7,961

Retail	8,437	6,402	4,027	2,784
Portfolio	889	917	704	655
Total Domain Services	72,187	50,318	15,422	11,400

Network Expenses:
Network, other costs	-	-	(2,574)	(2,343)
Network, depreciation and amortization costs	-	-	(1,630)	(971)
Total Network expenses	-	-	(4,204)	(3,314)

Total revenue/gross margin	95,796	69,568	22,619	16,944

“The first quarter was a solid start to 2018, with strong year-over-year growth in revenue, net income, adjusted EBITDA and cash flow from operations,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Our domains business continued its consistent performance as the Enom integration continues to progress on plan. Ting Mobile posted another quarter of solid year-over-year revenue and margin growth. On Ting Internet, we continued to see strong adoption in our three active towns and we prepared to start lighting up customers in our next two. Meanwhile, we announced our next Ting town, Fuquay-Varina, North Carolina.”

Financial Results

Net revenue for the first quarter of 2018 increased 38% to $95.8 million from $69.6 million for the first quarter of 2017 and benefited from the accelerated revenue recognition of $14.6 million related to a bulk transfer of 2.65 million domain names during the first quarter of 2018.

Net income for the first quarter of 2018 increased to $3.7 million, or $0.35 per share, from $2.4 million, or $0.23 per share, for the first quarter of 2017 driven by the growth in Adjusted EBITDA and lower statutory tax rates as a result of the Tax Cuts and Jobs Act of 2017.

Adjusted EBITDA¹ for the first quarter of 2018 increased 64% to $10.4 million from $6.3 million for the first quarter of 2017 driven by Enom and Ting Mobile.

Cash and cash equivalents at the end of the first quarter of 2018 was $16.6 million compared with $18.0 million at the end of the fourth quarter of 2017 and $15.0 million at the end of the first 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 March 31
	2018 (unaudited)	2017 (unaudited)
Net income for the period	3,744	2,446
Depreciation of property and equipment	1,232	757
Amortization of intangible assets	2,331	1,761
Interest expense, net	896	868
Provision for income taxes	1,183	(125)
Stock-based compensation	578	318
Unrealized loss (gain) on change in fair value of forward contracts	(3)	(18)
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities	176	(50)
Acquisition and transition costs*	241	382

Adjusted EBITDA	10,378	6,339
*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
Tucows management will host a conference call today, Wednesday, May 9, 2018 at 5:00 p.m. ET to discuss the Company’s first quarter 2018 results and outlook for the Company. 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 5873817 followed by the pound key. The telephone replay will be available until Wednesday, May 16, 2018 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) and Enom (http://www.enom.com) manage a combined 24 million domain names and millions of value-added services through a global reseller network of over 39,000 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)

		March 31,		December 31,
		2018		2017
		(unaudited)		(unaudited)

Assets

Current assets:
Cash and cash equivalents		$	16,587,886	$	18,049,164
Accounts receivable			12,685,140		12,376,104
Inventory			2,898,383		2,944,246
Prepaid expenses and deposits			14,710,902		14,185,586
Derivative instrument asset, current portion			21,515		-
Prepaid domain name registry and ancillary services fees, current portion			95,019,044		103,302,472
Income taxes recoverable			2,625,063		3,003,873
Total current assets			144,547,933		153,861,445

Derivative instrument asset, long-term portion			4,588		-

Prepaid domain name registry and ancillary services fees, long-term portion			20,640,539		23,700,931
Property and equipment			28,688,762		24,620,298
Contract costs			1,378,336		-
Intangible assets			56,047,310		58,414,178
Goodwill			90,053,483		90,053,483
Total assets		$	341,360,951	$	350,650,335


Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable		$	9,343,179	$	7,026,282
Accrued liabilities			7,171,475		6,412,578
Customer deposits			12,980,327		15,255,305
Deferred rent, current portion			21,048		20,991
Loan payable, current portion			18,289,853		18,289,853
Deferred revenue, current portion			122,203,880		129,154,622
Accreditation fees payable, current portion			1,226,544		1,174,733
Income taxes payable			984,707		1,226,157
Total current liabilities			172,221,013		178,560,521

Deferred revenue, long-term portion			28,779,438		31,426,906
Accreditation fees payable, long-term portion			277,022		288,755
Deferred rent, long-term portion			129,885		129,777
Loan payable, long-term portion			54,127,120		58,634,174
Deferred Gain			300,580		429,400
Deferred tax liability			20,116,385		19,833,678

Redeemable non-controlling interest			-		1,136,390

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; 10,592,115 shares issued and outstanding as of March 31, 2018 and 10,583,879 shares issued and outstanding as of December 31, 2017			15,426,104		15,368,161
Additional paid-in capital			2,547,140		2,166,768
Retained earnings			47,418,839		42,675,805
Accumulated other comprehensive income			17,425		-
Total stockholders' equity			65,409,508		60,210,734
Total liabilities and stockholders' equity		$	341,360,951	$	350,650,335

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

		Three months ended March 31,
		2018			2017
				(unaudited)

Net revenues	$	95,795,691		$	69,568,062

Cost of revenues:
Cost of revenues		68,972,220			49,310,712
Network expenses (*)		2,574,087			2,343,196
Depreciation of property and equipment		1,131,143			590,347
Amortization of intangible assets		499,032			380,162
Total cost of revenues		73,176,482			52,624,417

Gross profit		22,619,209			16,943,645

Expenses:
Sales and marketing (*)		8,364,787			7,219,322
Technical operations and development (*)		2,094,689			1,694,141
General and administrative (*)		4,531,412			3,457,343
Depreciation of property and equipment		101,072			166,317
Amortization of intangible assets		1,831,730			1,380,809
Loss (gain) on currency forward contracts		(3,093	)		(34,425	)
Total expenses		16,920,597			13,883,507

Income from operations		5,698,612			3,060,138

Other income (expenses):
Interest expense, net		(895,962	)		(867,993	)
Other income		123,960			128,897
Total other income (expenses)		(772,002	)		(739,096	)

Income before provision for income taxes		4,926,610			2,321,042

Provision for income taxes		1,182,918			(125,449	)
Net income before redeemable non-controlling interest		3,743,692			2,446,491

Redeemable non-controlling interest		(26,336	)		(125,764	)

Net income attributable to redeemable non-controlling interest		26,336			125,764
Net income for the period		3,743,692			2,446,491

Other comprehensive income (loss), net of tax
Unrealized income (loss) on hedging activities		17,425			186,229
Net amount reclassified to earnings		-			(80,620	)
Other comprehensive income (loss) net of tax of $5,585 and $60,079 for the three months ended March 31, 2018 and March 31, 2017		17,425			105,609

Comprehensive income, net of tax for the period	$	3,761,117		$	2,552,100

Basic earnings per common share	$	0.35		$	0.23

Shares used in computing basic earnings per common share		10,588,718			10,474,647

Diluted earnings per common share	$	0.35		$	0.23

Shares used in computing diluted earnings per common share		10,792,613			10,776,515



(*) Stock-based compensation has been included in expenses as follows:
Network expenses	$	55,838		$	4,383
Sales and marketing	$	186,940		$	59,001
Technical operations and development	$	176,511		$	61,410
General and administrative	$	158,893		$	193,026

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

		Three months ended March 31,
		2018			2017
Cash provided by:				(unaudited)
Operating activities:
Net income for the period	$	3,743,692		$	2,446,491
Items not involving cash:
Depreciation of property and equipment		1,232,215			756,664
Amortization of debt discount and issuance costs		69,533			67,105
Amortization of intangible assets		2,330,762			1,760,971
Net amortization of capitalized contract costs		25,272			-
Deferred income taxes (recovery)		(47,034	)		1,199,661
Excess tax benefits on share-based compensation expense		(143,969	)		(989,332	)
Amortization of deferred rent		165			4,032
Loss on disposal of domain names		37,478			9,789
Other income		(128,820	)		(128,820	)
Loss (gain) on change in the fair value of forward contracts		(3,093	)		(17,949	)
Stock-based compensation		578,182			317,820
Change in non-cash operating working capital:
Accounts receivable		(309,036	)		41,721
Inventory		45,863			170,996
Prepaid expenses and deposits		(525,316	)		(3,557,508	)
Prepaid domain name registry and ancillary services fees		11,343,820			(5,489,422	)
Income taxes recoverable		264,829			(2,660,528	)
Accounts payable		2,132,453			(3,446,427	)
Accrued liabilities		758,897			1,830,922
Customer deposits		(2,274,978	)		(83,591	)
Deferred revenue		(9,598,210	)		10,240,649
Accreditation fees payable		40,078			(71,327	)
Net cash provided by operating activities		9,572,783			2,401,917

Financing activities:
Proceeds received on exercise of stock options		7,201			19,869
Payment of tax obligations resulting from net exercise of stock options		(147,068	)		(712,234	)
Proceeds received on loan payable		-			86,998,000
Repayment of loan payable		(4,571,843	)		(6,258,278	)
Payment of loan payable costs		(4,125	)		(591,175	)
Net cash (used in) provided by financing activities		(4,715,835	)		79,456,182

Investing activities:
Additions to property and equipment		(5,116,854	)		(3,692,893	)
Acquisition of a portion of the minority interest in Ting Virginia, LLC.		(1,200,000	)		(2,000,000	)
Acquisition of Enom Incorporated, net of cash		-			(76,237,460	)
Acquisition of intangible assets		(1,372	)		-
Net cash used in investing activities		(6,318,226	)		(81,930,353	)

Decrease in cash and cash equivalents		(1,461,278	)		(72,254	)

Cash and cash equivalents, beginning of period		18,049,164			15,105,075
Cash and cash equivalents, end of period	$	16,587,886		$	15,032,821

Supplemental cash flow information:
Interest paid	$	901,344		$	872,645
Income taxes paid, net	$	1,337,123		$	2,342,916

Supplementary disclosure of non-cash investing and financing activities:
Property and equipment acquired during the period not yet paid for	$	397,661		$	250,847

Reconciliation of Net income to Adjusted EBITDA
(In Thousands of US Dollars)
(unaudited)

		Three months ended March 31,
		2018 (unaudited)			2017 (unaudited)

Net income for the period	$	3,744		$	2,446
Depreciation of property and equipment		1,232			757
Amortization of intangible assets		2,331			1,761
Interest expense, net		896			868
Provision for income taxes		1,183			(125	)
Stock-based compensation		578			318
Unrealized loss (gain) on change in fair value of forward contracts		(3	)		(18	)
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities		176			(50	)
Acquisition and other costs¹		241			382

Adjusted EBITDA	$	10,378		$	6,339


¹Acquisition 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.

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