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

Tucows Reports Financial Results for Third Quarter 2021

November 4, 2021 GMT

TORONTO, Nov. 04, 2021 (GLOBE NEWSWIRE) -- Tucows Inc. (NASDAQ:TCX, TSX:TC), a provider of Fiber Internet Services, Mobile Services, Domain Name Services and other Internet services, today reported its financial results for the third quarter ended September 30, 2021. 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.

Note on the Financial Impact of Tucows’ Sale of Ting Mobile Customer Relationships and Transition to Mobile Services Enabler Platform:

As previously announced, effective August 1, 2020 most of Tucows’ mobile customers relationships were sold to DISH Networks (“DISH”) as part of Tucows’ transition of its mobile business to a Mobile Services Enabler (MSE) model from a Mobile Virtual Network Operator (MVNO) model, under which DISH became Tucows’ first MSE customer. Accordingly, the results of the Mobile Services segment for the third quarter of 2021 reflect operations under the new MSE model with the third quarter of 2020 being composed of approximately one month of operations under Tucows’ previous MVNO model and approximately two months under the new MSE model.

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Under the terms of the earn out arrangement for the Ting customer base acquired by DISH, the income generated by the customer base acquired by Dish are recognized (net of expenses) as “Other Income” under the heading “Gain on Sale of Ting Customer Assets”. As a result, revenue and gross margin for the Mobile Services segment for the third quarter of 2021 were impacted by the significantly larger MVNO contribution for the third quarter of 2020. Tucows will recognize platform fees for customers owned by DISH under the Ting brand as well as customers under other DISH brands that are added to Tucows’ MSE platform, as Mobile Platform Services revenue under the terms of the MSE Agreement signed with DISH. For more information, see Tucows’ Financial Statements and Management Discussion and Analysis for the third quarter of 2021.

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

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3 Months ended September 309 Months ended September 30
2021
(Unaudited)
2020
(Unaudited)
% Change 2021
(Unaudited)
2020
(Unaudited)
% Change
Net revenue75,89374,3112.1%221,861240,418(7.7%)
Gross Profit18,02419,941(9.6%)53,71668,057(21.1%)
Gain on Sale of Ting Customer Assets15,5641,090410.5%15,7671,0901,346.5%
Net income1,37571692.0%5,3313,70743.8%
Basic Net earnings per common share0.130.0785.7%0.500.3542.9%
Adjusted EBITDA112,20513,270(8.0%)36,08338,124(5.4%)
Net cash provided by operating activities1,49211,432(86.9%)19,09534,444(44.6%)

Summary of Revenues, Gross Profit and Adjusted EBITDA
(In Thousands of US Dollars)

 RevenueGross ProfitAdj. EBITDA1
  3 Months ended
September 30
3 Months ended
September 30
3 Months ended
September 30
  2021
(Unaudited)
2020
(Unaudited)
2021
(Unaudited)
2020
(Unaudited)
2021
(Unaudited)
2020
(Unaudited)
Fiber Internet Services:  
Fiber Internet Services6,6724,6573,0192,975(4,358)(1,052)
       
Mobile Services:
Retail Mobile Services2,3097,0196083,579  
Mobile Platform Services3,5643763,444376  
Other Professional Services2,6191,457806190  
Total Mobile Services8,4928,8524,8584,1457,648 5,182 
       
Domain Services:  
Wholesale      
Domain Services47,08147,2619,97210,449  
Value Added Services4,8624,3804,1743,691  
Total Wholesale51,94351,64114,14614,140  
       
Retail8,7869,1614,3304,721  
Total Domain Services60,72960,80218,47618,86112,024 12,024 
Network Expenses:  
Network, other costsn/an/a3,4452,612n/a n/a 
Network, depreciation and amortization costsn/an/a4,6433,315n/a n/a 
Network, impairmentn/an/a241113n/a n/a 
Total Network expensesn/an/a8,3296,040n/a n/a 
         
Total75,89374,31118,02419,941n/a n/a 

“The third quarter once again saw solid financial performance across Tucows businesses,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Our Domains Services continued to deliver consistent performance, benefitting from the higher level of domains under management driven by the pandemic impact last year, as well as our success in maximizing gross margin. In our Mobile Services business, our third quarter results reflect the growing contribution of our new MSE Platform business, which continues to move forward in line with our expectations. And in our Fiber Internet Services business, we continued to make strong, steady progress in the accelerated build out of our network and our customer base, with serviceable addresses and subscribers increasing 48% and 67%, respectively, as we repeated our record level of new subscriber additions achieved in the second quarter.”

Financial Results

Net revenue for the third quarter of 2021 was $75.9 million compared with $74.3 million for the third quarter of 2020. The increase was the result of growth in revenue from the Fiber Internet Services and both Mobile Platform Services and Other Professional Services under the new MSE model, which were partially offset by the absence of Ting Mobile MVNO revenue in the third quarter of 2021, following the Company’s sale of its Ting Mobile customer relationships to DISH on August 1, 2020 and the related earn out being recognized as Other Income. This compares with approximately one month’s contribution in the third quarter of 2020. Excluding the Mobile Services business, net revenue for the combined Domains Services and Fiber Internet businesses for the third quarter of 2021 increased 3% from the third quarter of 2020. Revenue for Mobile Services for the third quarter of 2021 decreased 4% from the third quarter of 2020.

Gross profit for the third quarter of 2021 was $18.0 million compared with $19.9 million for the third quarter of 2020. Excluding the Mobile Services business, gross margin for the combined Domains Services and Fiber Internet Services businesses for the third quarter of 2021 decreased 2% from the third quarter of 2020. Gross profit for Mobile Services for the third quarter of 2021 increased 17% from the third quarter of 2020 due to growth in revenue under the new MSE model.

Net income for the third quarter of 2021 was $1.4 million, or $0.13 per share, compared with $0.7 million, or $0.07 per share, for the third quarter of 2020.

Adjusted EBITDA1 for the third quarter of 2021 was $12.2 million compared with $13.3 million for the third quarter of 2020. Adjusted EBITDA1 reflects the continued investment in Fiber Internet Services.

Cash and cash equivalents at the end of the third quarter of 2021 were $5.5 million compared with $7.3 million at the end of the second quarter of 2021 and $10.2 million at the end of the third quarter of 2020.

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 costs that are one-time in nature and not indicative of on-going performance (profitability), 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 adjusted EBITDA to income before provision for income taxes (dollars in thousands):

 3 months ended September 309 months ended September 30
  2021
(Unaudited)
2020
(Unaudited)
2021
(Unaudited)
2020
(Unaudited)
Adjusted EBITDA12,20513,270 36,08338,124 
Depreciation of property and equipment4,7583,110 12,7289,255 
Impairment and loss on disposition of property and equipment470113 5361,638 
Amortization of intangible assets2,2882,645 7,2538,776 
Impairment of definite life intangible assets-- -1,431 
Disposal of Ting Mobile customer assets-3,513 -3,513 
Interest expense, net1,169760 3,1082,756 
Accretion of contingent consideration9686 287258 
Stock-based compensation1,1261,016 3,3572,664 
Unrealized loss (gain) on change in fair value of forward contracts249(175)606(263)
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities7281 178479 
Acquisition and transition costs*901565 2,0341,520 
     
Income before provision for income taxes1,0761,556 5,9966,097 
*Acquisition and other costs represent transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses, primarily related to our acquisition of Ascio in March 2019 and Cedar in January 2020 and disposition of certain Ting Mobile assets in August 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 its quarterly financial results news release at 5:05 pm ET on Thursday, November 4, management’s pre-recorded audio commentary (and transcript) discussing the quarter and outlook for the Company, will be posted to the Tucows website at http://www.tucows.com/investors/financials. In lieu of a live question and answer period, for the subsequent eight days, until Friday, 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 (audio recording and transcript) to the Company’s website at http://www.tucows.com/investors/financials/ on Thursday, November 18, at approximately 4 pm 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 Fiber Internet Services, Mobile Services, Domain Name Services and other Internet services. Ting Internet ( https://ting.com/internet ) delivers fixed fiber Internet access with outstanding customer support. Tucows’ mobile services enabler (MSE) platform provides network access, provisioning and billing services for mobile virtual network operators (MVNOs). OpenSRS ( https://opensrs.com ), Enom ( https://www.enom.com ) and Ascio ( https://ascio.com ) combined manage approximately 25 million domain names and millions of value-added services through a global reseller network of over 36,000 web hosts and ISPs. Hover ( https://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 ( https://tucows.com ).

      
Tucows  Inc.
Consolidated Balance Sheets
(Dollar amounts in thousands of U.S. dollars)
 
 September 30, December 31,
  2021   2020 
 (unaudited)(unaudited)
 
Assets 
 
Current assets: 
Cash and cash equivalents $5,535  $8,311 
Accounts receivable  14,822   15,540 
Contract asset, current portion  2,783   - 
Inventory  3,111   1,875 
Prepaid expenses and deposits  18,719   16,845 
Derivative instrument asset, current portion  -   3,860 
Deferred costs of fulfillment, current portion  94,970   93,467 
Income taxes recoverable  3,892   1,302 
Total current assets  143,832   141,200 
     
Deferred costs of fulfillment, long-term portion  18,226   17,599 
Derivative instrument asset, long-term portion  78   - 
Property and equipment  155,236   117,530 
Right of use operating lease asset  16,138   11,238 
Contract costs  806   362 
Deferred tax asset  153   226 
Intangible assets  40,413   47,444 
Goodwill  116,304   116,304 
Investment  2,012   - 
Total assets $493,198  $451,903 
     
     
Liabilities and Stockholders' Equity     
     
Current liabilities:     
Accounts payable $9,260  $6,329 
Accrued liabilities  12,176   10,235 
Customer deposits  15,139   15,402 
Derivative instrument liability, current portion  453   99 
Operating lease liability, current portion  2,588   1,761 
Deferred revenue, current portion  127,792   127,336 
Accreditation fees payable, current portion  913   940 
Income taxes payable  62   863 
Total current liabilities  168,383   162,965 
     
Derivative instrument liability, long-term portion  -   114 
Deferred revenue, long-term portion  24,195   24,909 
Accreditation fees payable, long-term portion  177   195 
Operating lease liability, long-term portion  11,103   9,179 
Loan payable, long-term portion  149,937   121,733 
Other long-term liability  3,703   3,416 
Deferred tax liability  22,481   24,694 
     
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; 10,696,779 shares issued and outstanding as of September 30, 2021 and 10,612,414 shares issued and outstanding as of December 31, 2020 25,520   20,798 
Additional paid-in capital  2,550   1,458 
Retained earnings  85,437   80,106 
Accumulated other comprehensive income (loss)  (288)  2,336 
Total stockholders' equity  113,219   104,698 
Total liabilities and stockholders' equity $493,198  $451,903 

 

         
 Tucows  Inc. 
 Consolidated Statements of Operations and Comprehensive Income 
 (Dollar amounts in thousands of U.S. dollars) 
 
  Three months ended
September 30,
Nine months ended
September 30,
  2021  2020  2021  2020 
   
 (unaudited) (unaudited) 
 
Net revenues$75,893 $74,311 $221,861 $240,418 
        
Cost of revenues:        
Direct cost of revenues 49,540  48,330  144,860  153,308 
Network expenses (*) 3,445  2,612  10,295  7,513 
Depreciation of property and equipment 4,622  2,985  12,344  8,892 
Amortization of intangible assets 21  330  344  1,010 
Impairment of property and equipment 241  113  302  1,638 
Total cost of revenues 57,869  54,370  168,145  172,361 
        
Gross profit 18,024  19,941  53,716  68,057 
        
Expenses:        
Sales and marketing (*)$9,892 $8,318 $27,579 $26,521 
Technical operations and development (*) 3,742  3,162  10,044  8,980 
General and administrative (*) 5,069  4,868  15,232  15,074 
Depreciation of property and equipment 136  125  384  363 
Loss on disposition of property and equipment 229  -  234  - 
Amortization of intangible assets 2,267  2,315  6,909  7,766 
Impairment of definite life intangible assets -  -  -  1,431 
Loss (gain) on currency forward contracts (87) (159) (277) (99)
Total expenses 21,248  18,629  60,105  60,036 
        
Income from operations (3,224) 1,312  (6,389) 8,021 
        
Other income (expenses):        
Interest expense, net (1,169) (760) (3,108) (2,756)
Gain on sale of Ting Customer Assets, net 5,564  1,090  15,767  1,090 
Other expense, net (95) (86) (274) (258)
Total other income (expenses) 4,300  244  12,385  (1,924)
        
Income before provision for income taxes 1,076  1,556  5,996  6,097 
        
Provision for income taxes (299) 840  665  2,390 
Net income before redeemable non-controlling interest1,375  716  5,331  3,707 
        
Redeemable non-controlling interest -  -  -  - 
        
Net income attributable to redeemable non-controlling interest-  -  -  - 
Net income for the period 1,375  716  5,331  3,707 
        
Other comprehensive income, net of tax        
Unrealized income (loss) on hedging activities (501) 729  115  609 
Net amount reclassified to earnings (884) 46  (2,739) 289 
Other comprehensive income net of tax expense (recovery) of $(419) and $230 for the three months ended September 30, 2021 and September 30, 2020, ($794) and $262 for the nine months ended September 30, 2021 and Septmeber 30, 2020(1,385) 775  (2,624) 898 
            
Comprehensive income, net of tax for the period$(10)$1,491 $2,707 $4,605 
             
Basic earnings per common share$0.13 $0.07 $0.50 $0.35 
             
Shares used in computing basic earnings per common share 10,679,309  10,577,731  10,643,798  10,585,785 
             
Diluted earnings per common share$0.13 $0.07 $0.49 $0.35 
             
Shares used in computing diluted earnings per common share 10,819,716  10,682,808  10,800,361  10,679,162 
             
             
             
(*) Stock-based compensation has been included in expenses as follows:            
Network expenses$131 $138 $400 $333 
Sales and marketing$443 $457 $1,498 $1,203 
Technical operations and development$209 $208 $610 $558 
General and administrative$344 $214 $849 $570 

 

 
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,
  2021  2020  2021  2020 
Cash provided by:(unaudited)(unaudited)
Operating activities: 
Net income for the period$1,375 $716 $5,331 $3,707 
Items not involving cash:        
Depreciation of property and equipment 4,758  3,110  12,728  9,255 
Impairment of property and equipment 241  113  302  1,638 
Amortization of debt discount and issuance costs 68  68  202  202 
Amortization of intangible assets 2,288  2,645  7,253  8,776 
Net amortization contract costs (189) (15) (444) 109 
Impairment of definite life intangible assets -  -  -  1,431 
Other -  -  -  223 
Accretion of contingent consideration 96  86  287  258 
Deferred income taxes (recovery) (488) 180  (1,368) (927)
Excess tax benefits on share-based compensation expense (323) (164) (868) (508)
Net Right of use operating assets/Operating lease liability (2,378) 137  (2,149) 249 
Loss on disposal of domain names -  -  1  15 
Loss (gain) on change in the fair value of forward contracts 249  (175) 606  (263)
Write-down on disposal of Ting Mobile customer assets -  3,513  -  3,513 
Stock-based compensation 1,126  1,016  3,357  2,664 
Change in non-cash operating working capital:        
Accounts receivable (11) 118  718  2,670 
Contract asset (2,783) -  (2,783) - 
Inventory (275) (123) (1,236) 1,681 
Prepaid expenses and deposits 918  2,905  (1,874) (317)
Deferred costs of fulfillment 1,442  984  (2,130) (4,073)
Income taxes recoverable 532  (2,475) (2,502) (1,681)
Accounts payable 271  509  2,289  759 
Accrued liabilities (1,828) (668) 1,941  (334)
Customer deposits (673) 69  (263) 463 
Deferred revenue (2,873) (1,070) (258) 4,927 
Accreditation fees payable (51) (47) (45) 7 
Net cash provided by operating activities 1,492  11,432  19,095  34,444 
        
Financing activities:        
Proceeds received on exercise of stock options 1,368  632  2,844  678 
Payment of tax obligations resulting from net exercise of stock options(89) (132) (387) (479)
Repurchase of common stock -  -  -  (3,281)
Proceeds received on loan payable 10,000  -  28,000  - 
Payment of loan payable costs -  -  -  (32)
Net cash (used in) provided by financing activities 11,279  500  30,457  (3,114)
        
Investing activities:        
Cost of Domain Names acquired -  -  -  - 
Additions to property and equipment (14,488) (10,636) (50,093) (32,729)
Gross proceeds from the waiver of rights to .online registry -  -  -  - 
Acquisition of other assets -  -  -  - 
Acquisition of Cedar Holdings Group, net of cash of $66 -  -  -  (8,770)
Acquisition of Ascio Technologies Inc. (net of cash of $1,437) -  -  -  - 
Acquisition of intangible assets (6) -  (223) (69)
Investment in securities -  -  (2,012) - 
Net cash used in investing activities (14,494) (10,636) (52,328) (41,568)
        
(Decrease) increase in cash and cash equivalents (1,723) 1,296  (2,776) (10,238)
        
Cash and cash equivalents, beginning of period 7,258  8,859  8,311  20,393 
Cash and cash equivalents, end of period$5,535 $10,155 $5,535 $10,155 
        
Supplemental cash flow information:        
Interest paid$1,144 $635 $3,038 $2,638 
Income taxes paid, net$212 $3,249 $6,008 $5,449 
        
Supplementary disclosure of non-cash investing and financing activities:       
Property and equipment acquired during the period not yet paid for$1,772 $1,697 $1,772 $1,697 
Fair value of shares issues for acquisition of Cedar Holdings Group$- $- $- $2,000 
Fair value of contingent consideration for acquisition of Cedar Holdings Group$- $- $- $3,072 
             

 

Reconciliation of Net income to Adjusted EBITDA         
(In Thousands of U.S. Dollars)Three months ended September 30,Nine months ended September 30,
(unaudited) 2021 (unaudited) 2020 (unaudited) 2021 (unaudited) 2020 (unaudited)
  
Net income for the period$1,375 $716 $5,331 $3,707 
Depreciation of property and equipment 4,758  3,110  12,728  9,255 
Impairment of property and equipment 470  113  536  1,638 
Amortization of intangible assets 2,288  2,645  7,253  8,776 
Impairment of indefinite life intangible assets-  -  -  1,431 
Write-down on disposal of Ting Mobile assets-  3,513  -  3,513 
Interest expense, net 1,169  760  3,108  2,756 
Accretion of contingent consideration 96  86  287  258 
Provision for income taxes (299) 840  665  2,390 
Stock-based compensation 1,126  1,016  3,357  2,664 
Unrealized loss (gain) on change in fair value of forward contracts249  (175) 606  (263)
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities72  81  178  479 
Acquisition and other costs1 901  565  2,034  1,520 
         
Adjusted EBITDA$12,205 $13,270 $36,083 $38,124 
 
1Acquisition and other costs represents transaction-related expenses, transitional expenses, such as duplicative post-acquisition expenses. Expenses include severance and 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