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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

Tucows Reports Financial Results for Third Quarter 2019

November 6, 2019

TORONTO, Nov. 06, 2019 (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, 2019. 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 ------------------------------ ------------------------------ 2019 2018 % 2019 2018 % (Unaudited) (Unaudited) Change (Unaudited) (Unaudited) Change ----------------------------------------- ----------- ----------- ------ ----------- ----------- ------ Net revenue 88,129 83,519 6% 251,199 260,401 -4% ----------------------------------------- ----------- ----------- ------ ----------- ----------- ------ Net income 4,205 5,346 -21% 9,620 12,699 -24% ----------------------------------------- ----------- ----------- ------ ----------- ----------- ------ Basic Net earnings per common share 0.40 0.50 -20% 0.90 1.20 -25% ----------------------------------------- ----------- ----------- ------ ----------- ----------- ------ Adjusted EBITDA1,2 14,832 11,858 25% 35,749 33,425 7% ----------------------------------------- ----------- ----------- ------ ----------- ----------- ------ Net cash provided by operating activities 11,215 11,214 0% 27,185 26,541 2% ----------------------------------------- ----------- ----------- ------ ----------- ----------- ------

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 and first nine months of 2019 reflect 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 $0.9 million and $1.9 million, respectively.

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

Revenue Gross Profit -------------------------------------------- ----------------------- ----------------------- 3 Months ended 3 Months ended September 30 September 30 -------------------------------------------- ----------------------- ----------------------- 2019 2018 2019 2018 (Unaudited) (Unaudited) (Unaudited) (Unaudited) -------------------------------------------- ----------- ----------- ----------- ----------- Network Access Services: -------------------------------------------------------------------------------------------- Mobile Services 21,722 22,546 10,551 11,147 -------------------------------------------- ----------- ----------- ----------- ----------- Other Services 2,890 2,033 1,954 1,161 -------------------------------------------- ----------- ----------- ----------- ----------- Total Network Access Services 24,612 24,579 12,505 12,308 -------------------------------------------- ----------- ----------- ----------- ----------- Domain Services: -------------------------------------------------------------------------------------------- Wholesale -------------------------------------------- ----------- ----------- ----------- ----------- Domain Services 47,259 45,071 8,922 7,657 -------------------------------------------- ----------- ----------- ----------- ----------- Value Added Services 5,154 4,540 4,381 3,733 -------------------------------------------- ----------- ----------- ----------- ----------- Total Wholesale 52,413 49,611 13,303 11,390 -------------------------------------------- ----------- ----------- ----------- ----------- Retail 8,713 8,731 4,354 4,266 -------------------------------------------- ----------- ----------- ----------- ----------- Portfolio 2,391 598 2,211 450 -------------------------------------------- ----------- ----------- ----------- ----------- Total Domain Services 63,517 58,940 19,868 16,106 -------------------------------------------- ----------- ----------- ----------- ----------- Network Expenses: -------------------------------------------------------------------------------------------- Network, other costs - - (2,254) (2,315) -------------------------------------------- ----------- ----------- ----------- ----------- Network, depreciation and amortization costs - - (2,545) (1,838) -------------------------------------------- ----------- ----------- ----------- ----------- Total Network expenses - - (4,799) (4,153) -------------------------------------------- ----------- ----------- ----------- ----------- Total 88,129 83,519 27,574 24,261 -------------------------------------------- ----------- ----------- ----------- -----------

“The third quarter was highlighted by solid financial performance, with year-over-year growth in revenue, gross margin and adjusted EBITDA, as we continued to execute on our strategic priorities in each component of the business,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Our Domains and Ting Mobile businesses continue to generate strong cash flows to support our outsized Ting Internet growth opportunity, where we saw another quarter of steady progress -- further expanding both our projected potential serviceable addresses and serviceable addresses completed, while continuing to add new customers.”

Financial Results

Net revenue for the third quarter of 2019 increased 6% to $88.1 million from $83.5 million for the third quarter of 2018.

Net income for the third quarter of 2019 decreased 21% to $4.2 million, or $0.40 per share from $5.3 million, or $0.50 per share, for the third quarter of 2018.

Adjusted EBITDA1 for the third quarter of 2019 increased 25% to $14.8 million from $11.8 million for the third quarter of 2018. Adjusted EBITDA for the third quarter of 2019 reflects the impact of the purchase price accounting adjustment related to the fair value write down of deferred revenue from the Ascio acquisition, which lowered Adjusted EBITDA by $0.9 million.

Cash and cash equivalents at the end of the third quarter of 2019 were $12.0 million compared with $12.0 million at the end of the second quarter of 2019 and $10.8 million at the end of the third quarter of 2018.

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 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 9 months ended September 30 September 30 --------------------------------------------------------- ----------------------- ----------------------- 2019 2018 2019 2018 (unaudited) (unaudited) (unaudited) (unaudited) --------------------------------------------------------- ----------- ----------- ----------- ----------- Net income for the period 4,205 5,346 9,620 12,699 --------------------------------------------------------- ----------- ----------- ----------- ----------- Depreciation of property and equipment 2,348 1,445 6,445 4,006 --------------------------------------------------------- ----------- ----------- ----------- ----------- Loss on disposition of property and equipment 73 - 73 - --------------------------------------------------------- ----------- ----------- ----------- ----------- Amortization of intangible assets 2,858 2,296 7,463 6,953 --------------------------------------------------------- ----------- ----------- ----------- ----------- Interest expense, net 1,263 914 3,549 2,761 --------------------------------------------------------- ----------- ----------- ----------- ----------- Provision for income taxes 3,133 1,370 6,209 3,781 --------------------------------------------------------- ----------- ----------- ----------- ----------- Stock-based compensation 830 711 2,040 1,904 --------------------------------------------------------- ----------- ----------- ----------- ----------- Unrealized loss (gain) on change in fair value of forward (16) (35) (204) 7 contracts --------------------------------------------------------- ----------- ----------- ----------- ----------- Unrealized loss (gain) on foreign exchange revaluation of 88 (269) (402) 191 foreign denominated monetary assets and liabilities --------------------------------------------------------- ----------- ----------- ----------- ----------- Acquisition and transition costs* 50 80 956 1,123 --------------------------------------------------------- ----------- ----------- ----------- ----------- Adjusted EBITDA 14,832 11,858 35,749 33,425 --------------------------------------------------------- ----------- ----------- ----------- ----------- *Acquisition and other costs represents transaction-related expenses, transitional expenses, such as duplicative post-acquisition expenses, primarily related to the Company’s acquisition of Enom in January 2017 and Ascio in March 2019. Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments. ---------------------------------------------------------------------------------------------------------

Conference CallConcurrent 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 Tuesday, 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 Thursday, November 21 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 TucowsTucows 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 37,000 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, 2019 2018 * ----------- - ----------- (unaudited) (unaudited) Assets Current assets: Cash and cash equivalents $ 11,989 $ 12,637 Accounts receivable 13,351 10,837 Inventory 3,903 3,775 Prepaid expenses and deposits 19,717 15,472 Derivative instrument asset, current portion - - Prepaid domain name registry and ancillary services fees, current portion 95,614 87,782 Other assets - - Income taxes recoverable 2,532 1,423 - ------- - - ------- - Total current assets 147,106 131,926 Prepaid domain name registry and ancillary services fees, long-term portion 17,477 18,745 Property and equipment 72,167 48,065 Right of use operating lease asset 11,028 - Contract costs 1,398 1,390 Intangible assets 60,066 49,395 Goodwill 110,100 90,054 Total assets $ 419,342 $ 339,575 - ------- - - ------- - Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 5,440 $ 8,445 Accrued liabilities 14,445 5,899 Customer deposits 14,920 11,919 Derivative instrument liability 41 1,276 Deferred rent, current portion - 21 Operating lease liability, current portion 1,450 - Loan payable, current portion - 18,400 Deferred revenue, current portion 128,138 116,734 Accreditation fees payable, current portion 977 985 Income taxes payable 689 1,668 - ------- - - ------- - Total current liabilities 166,100 165,347 Deferred revenue, long-term portion 26,003 26,960 Accreditation fees payable, long-term portion 224 250 Deferred rent, long-term portion - 116 Operating lease liability, long-term portion 9,107 - Loan payable, long-term portion 104,968 46,201 Deferred Gain - - Deferred tax liability 25,941 20,925 Redeemable non-controlling interest - - 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; 10,572,069 shares issued and outstanding as of September 30, 2019 and 10,627,988 shares issued and 16,492 15,823 outstanding as of December 31, 2018 Additional paid-in capital 106 3,953 Retained earnings 70,430 60,810 Accumulated other comprehensive income (loss) (29 ) (810 ) Total stockholders’ equity 86,999 79,776 - ------- - - ------- - Total liabilities and stockholders’ equity $ 419,342 $ 339,575 - ------- - - ------- - *The Company has initially applied ASC 2016-02 (Topic 842) using the modified retrospective method. Under this method, the comparative information is not restated.

Tucows Inc. Consolidated Statements of Operations and Comprehensive Income (Dollar amounts in thousands of U.S. dollars) Three months ended September Nine months ended September 30, 30, 2019 2018 * 2019 2018 * ------------ ------------ ------------ ------------ (unaudited) (unaudited) Net revenues $ 88,129 $ 83,519 $ 251,199 $ 260,401 Cost of revenues: Cost of revenues 55,756 55,105 162,561 178,578 Network expenses (*) 2,254 2,315 7,034 7,590 Depreciation of property and equipment 2,231 1,339 6,070 3,697 Amortization of intangible assets 314 499 802 1,497 Total cost of revenues 60,555 59,258 176,467 191,362 ---------- - ---------- - ---------- - ---------- - Gross profit 27,574 24,261 74,732 69,039 Expenses: Sales and marketing (*) 8,769 8,412 26,366 24,629 Technical operations and development (*) 2,876 2,207 8,151 6,657 General and administrative (*) 4,574 4,120 13,818 12,906 Depreciation of property and equipment 117 106 375 309 Loss on disposition of property and equipment 73 - 73 - Amortization of intangible assets 2,544 1,797 6,661 5,456 Loss (gain) on currency forward contracts 20 (27 ) (90 ) 22 Total expenses 18,973 16,615 55,354 49,979 ---------- - ---------- - ---------- - ---------- - Income from operations 8,601 7,646 19,378 19,060 Other income (expenses): Interest expense, net (1,263 ) (914 ) (3,549 ) (2,761 ) Other income, net - (16 ) - 181 Total other income (expenses) (1,263 ) (930 ) (3,549 ) (2,580 ) ---------- - ---------- - ---------- - ---------- - Income before provision for income taxes 7,338 6,716 15,829 16,480 Provision for income taxes 3,133 1,370 6,209 3,781 ---------- - ---------- - ---------- - ---------- - Net income before redeemable non-controlling 4,205 5,346 9,620 12,699 interest Redeemable non-controlling interest - - - (26 ) Net income attributable to redeemable - - - 26 non-controlling interest ---------- - ---------- - ---------- - ---------- - Net income for the period 4,205 5,346 9,620 12,699 Other comprehensive income, net of tax Unrealized income (loss) on hedging activities (175 ) 144 614 (112 ) Net amount reclassified to earnings 26 63 167 76 Other comprehensive income (loss) net of tax (expense) recovery of $47 and ($59) for the three months ended September 30, 2019 and September 30, (149 ) 207 781 (36 ) 2018, ($250) and $19 for the nine months ended September 30, 2019 and September 30, 2018 (note 5) ---------- - ---------- - ---------- - ---------- - Comprehensive income, net of tax for the period $ 4,056 $ 5,553 $ 10,401 $ 12,663 ---------- - ---------- - ---------- - ---------- - Basic earnings per common share $ 0.40 $ 0.50 $ 0.90 $ 1.20 ---------- - ---------- - ---------- - ---------- - Shares used in computing basic earnings per common 10,626,754 10,611,579 10,639,544 10,599,243 share ---------- - ---------- - ---------- - ---------- - Diluted earnings per common share $ 0.39 $ 0.50 $ 0.89 $ 1.18 ---------- - ---------- - ---------- - ---------- - Shares used in computing diluted earnings per 10,745,834 10,794,297 10,798,099 10,795,668 common share ---------- - ---------- - ---------- - ---------- - (*) Stock-based compensation has been included in expenses as follows: Network expenses $ 95 $ 70 $ 224 $ 153 Sales and marketing $ 363 $ 307 $ 857 $ 739 Technical operations and development $ 179 $ 150 $ 428 $ 501 General and administrative $ 193 $ 184 $ 531 $ 511 *The Company has initially applied ASC 2016-02 (Topic 842) using the modified retrospective method. Under this method, the comparative information is not restated.

Tucows Inc. Consolidated Statements of Cash Flows (Dollar amounts in thousands of U.S. dollars) Three months ended Nine months ended September 30, September 30, 2019 2018 * 2019 2018 * --------- -------- --------- --------- Cash provided by: (unaudited) (unaudited) Operating activities: Net income for the period $ 4,205 $ 5,346 $ 9,620 $ 12,699 Items not involving cash: Depreciation of property and equipment 2,348 1,445 6,445 4,006 Loss on write off of property and equipment 120 - 142 - Amortization of debt discount and issuance costs 64 72 232 211 Amortization of intangible assets 2,858 2,296 7,463 6,953 Net amortization contract costs (61 ) (29 ) (8 ) 21 Deferred income taxes (recovery) (170 ) (369 ) 1,741 (861 ) Excess tax benefits on share-based compensation expense (53 ) (191 ) (790 ) (532 ) Amortization of deferred rent - (5 ) - (9 ) Net Right of use operating assets/Operating lease liability (54 ) - (5 ) - Loss on disposal of domain names 66 5 72 70 Other income - - - (171 ) Loss (gain) on change in the fair value of forward contracts (16 ) (30 ) (204 ) 13 Stock-based compensation 830 711 2,040 1,904 Change in non-cash operating working capital: Accounts receivable (1,763 ) 685 (1,920 ) 847 Inventory (644 ) 108 (128 ) (196 ) Prepaid expenses and deposits (329 ) 874 (3,243 ) (368 ) Prepaid domain name registry and ancillary services fees 3,819 4,229 3,754 15,777 Income taxes recoverable 1,576 (137 ) (1,299 ) 293 Accounts payable (2,394 ) 778 (2,778 ) 1,048 Accrued liabilities 3,687 107 7,274 465 Customer deposits 1,394 (1,049 ) 873 (3,370 ) Deferred revenue (4,200 ) (3,559 ) (2,062 ) (12,090 ) Accreditation fees payable (68 ) (73 ) (34 ) (169 ) Net cash provided by operating activities 11,215 11,214 27,185 26,541 ------- - ------ - ------- - ------- - Financing activities: Proceeds received on exercise of stock options 118 23 312 62 Payment of tax obligations resulting from net exercise of stock (20 ) (116 ) (544 ) (404 ) options Repurchase of common stock (4,986 ) - (4,986 ) - Proceeds received on loan payable 5,000 - 45,371 2,500 Repayment of loan payable 3 (4,387 ) (4,600 ) (15,212 ) Payment of loan payable costs 2 (4 ) (639 ) (8 ) Net cash (used in) provided by financing activities 117 (4,484 ) 34,914 (13,062 ) ------- - ------ - ------- - ------- - Investing activities: Additions to property and equipment (10,308 ) (7,003 ) (31,157 ) (19,439 ) Acquisition of a portion of the minority interest in Ting - - - (1,200 ) Virginia, LLC Acquisition of Ascio Technologies Inc. (net of cash of $1,437) - - (28,024 ) - Acquisition of intangible assets (1,038 ) (113 ) (3,566 ) (114 ) Net cash used in investing activities (11,346 ) (7,116 ) (62,747 ) (20,753 ) ------- - ------ - ------- - ------- - (Decrease) increase in cash and cash equivalents (14 ) (386 ) (648 ) (7,274 ) Cash and cash equivalents, beginning of period 12,003 11,161 12,637 18,049 Cash and cash equivalents, end of period $ 11,989 $ 10,775 $ 11,989 $ 10,775 ------- - ------ - ------- - ------- - Supplemental cash flow information: Interest paid $ 1,267 $ 919 $ 3,561 $ 2,781 Income taxes paid, net $ 1,959 $ 1,793 $ 6,123 $ 5,370 Supplementary disclosure of non-cash investing and financing activities: Property and equipment acquired during the period not yet paid $ 991 $ 382 $ 991 $ 382 for Acquisition of intangible assets transferred from other assets $ 2,501 $ - $ - $ - *The Company has initially applied ASC 2016-02 (Topic 842) using the modified retrospective method. Under this method, the comparative information is not restated.

Reconciliation of Net income to Adjusted EBITDA (In Thousands of U.S. Dollars) Three months ended Nine months ended September 30, September 30, 2019 2018 2019 2018 (unaudited) (unaudite (unaudite (unaudite (unaudited) d) d) d) -------- -------- -------- ----------- Net income for the period $ 4,205 $ 5,346 $ 9,620 $ 12,699 Depreciation of property and equipment 2,348 1,445 6,445 4,006 Loss on disposition of property and equipment 73 - 73 - Amortization of intangible assets 2,858 2,296 7,463 6,953 Interest expense, net 1,263 914 3,549 2,761 Provision for income taxes 3,133 1,370 6,209 3,781 Stock-based compensation 830 711 2,040 1,904 Unrealized loss (gain) on change in fair value of forward (16 ) (35 ) (204 ) 7 contracts Unrealized loss (gain) on foreign exchange revaluation of 88 (269 ) (402 ) 191 foreign denominated monetary assets and liabilities Acquisition and other costs1 50 80 956 1,123 Adjusted EBITDA $ 14,832 $ 11,858 $ 35,749 $ 33,425 ------ - ------ - ------ - ----------- 1 Acquisition 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 and Ascio in March 2019. 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 | lawrence.chamberlain@loderockadvisors.com