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Tucows Reports Continuing Strong Financial Results for First Quarter 2018

TCX

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%
       
  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)

  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

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