TORONTO, Nov. 09, 2017 (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, 2017. 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
2017 (Unaudited)
2016 (Unaudited)
% Change
2017 (Unaudited)
2016 (Unaudited)
% Change
Net revenue
85,008
49,064
73%
238,800
141,014
69%
Net income
3,439
4,741
(27%)
11,127
13,250
(16%)
Basic Net earnings per common share
0.33
0.45
(27%)
1.06
1.26
(16%)
Adjusted EBITDA1,2
9,368
8,575
9%
26,082
22,798
14%
Net cash provided by operating activities
7,282
5,269
38%
17,816
13,442
33%
This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table. In the second quarter of 2016, Tucows revised its definition of Adjusted EBITDA as detailed in the description below and the table reconciling Adjusted EBITDA to GAAP net income.
Adjusted EBITDA for the third quarter and first nine months of 2017 reflect the impact of the purchase price accounting adjustment related to the fair value write down of deferred revenue from the Enom acquisition which lowered Adjusted EBITDA by $1.5 million and $7.0 million for the third quarter and first nine months of 2017, respectively.
Summary of Revenues and Gross Margin
(In Thousands of US Dollars)
Revenue
Gross Margin
3 Months ended September 30
3 Months ended September 30
2017 (Unaudited)
2016 (Unaudited)
2017 (Unaudited)
2016 (Unaudited)
Network Access Services:
Mobile Services
21,749
18,375
9,383
9,288
Other Services
1,244
878
299
376
Total Network Access Services
22,993
19,253
9,682
9,664
Domain Services:
Wholesale
Domain Services
47,770
22,956
5,476
4,021
Value Added Services
4,401
2,227
3,730
1,764
Total Wholesale
52,171
25,183
9,206
5,785
Retail
8,873
3,721
4,262
1,993
Portfolio
971
907
791
776
Total Domain Services
62,015
29,811
14,259
8,554
Network Expenses:
Network, other costs
-
-
(2,461)
(1,288)
Network, depreciation and amortization costs
-
-
(1,322)
(292)
Total Network expenses
-
-
(3,783)
(1,580)
Total revenue/gross margin
85,008
49,064
20,158
16,638
“This was another strong quarter for both our present and our future,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “As for the present, the third quarter of 2017 was yet another quarter of record revenue at $85 million. For the future, all our business units took steps in the right direction. The integration of our domain name platforms is going well. Ting Mobile continues to grow its customer base and its reputation. Ting Internet is executing well and ramping quickly.”
“I am particularly proud that we can make such meaningful investments in infrastructure, people and customer acquisition without taking a step backwards on topline growth.”
Financial Results
Net revenue for the third quarter of 2017 increased 73% to $85.0 million from $49.1 million for the third quarter of 2016.
Net income for the third quarter of 2017 decreased 27% to $3.4 million, or $0.33 per share, from $4.7 million, or $0.45 per share, for the third quarter of 2016. Adjusted EBITDA1 for the third quarter of 2017 increased 9% to $9.4 million from $8.6 million for the third quarter of 2016. The increase in adjusted EBITDA1 was largely the result of the acquisition of Enom in January 2017 and, to a lesser extent, continued growth in the Company’s incumbent Domains business. Year-over-year growth in adjusted EBITDA1 was negatively impacted by two factors that benefitted the third quarter of 2016. Ting Mobile received a cost decrease from its network suppliers in advance of permanently passing the decrease on to customers. In addition, the Company recorded a reversal of an overachievement bonus accrual of in the third quarter of 2016 that was not repeated in the third quarter of 2017. These one-time occurrences inflated third quarter 2016 adjusted EBITDA1 by more than $0.9 million.
Cash and cash equivalents at the end of the third quarter of 2017 were $12.5 million compared with $15.1 million at the end of the second quarter of 2017 and $10.5 million at the end of the third quarter of 2016.
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 disclose and discuss a non-GAAP financial measure, adjusted EBITDA, 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 September 30
9 months ended September 30*
2017 (unaudited)
2016 (unaudited)
2017 (unaudited)
2016 (unaudited)
Net income for the period
3,439
4,741
11,127
13,250
Depreciation of property and equipment
978
457
2,614
1,305
Amortization of intangible assets
2,245
293
6,070
650
Impairment of intangible assets
2
3
2
28
Interest expense, net
864
135
2,703
302
Provision for income taxes
1,823
2,493
2,781
6,476
Stock-based compensation
203
195
834
586
Unrealized loss (gain) on change in fair value of forward contracts
1
(20)
(37)
(292)
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities
(426)
278
(760)
493
Acquisition and transition costs**
239
-
748
-
Adjusted EBITDA
9,368
8,575
26,082
22,798
*Adjusted EBITDA amounts presented herein for the nine months ended September 30, 2016 have been recast to reflect adjusted EBITDA definitional changes described in the Company’s Form 10-Q Quarterly Report for the three months ended September 30, 2016.
**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, Thursday, November 9, 2017 at 5:00 p.m. (ET) to discuss the Company’s third quarter 2017 results. 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 3676019 followed by the pound key. The telephone replay will be available until Thursday, November 16, 2017 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 28 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).
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 manage realized gains/losses from foreign currency contracts. 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.
Prepaid domain name registry and ancillary services fees, current portion
106,672,400
49,396,737
Income taxes recoverable
780,185
220,451
Total current assets
151,947,933
83,282,117
Prepaid domain name registry and ancillary services fees, long-term portion
23,791,150
10,993,156
Property and equipment
22,232,870
13,450,438
Deferred tax asset
-
5,708,725
Intangible assets
60,562,113
19,973,793
Goodwill
87,486,243
21,005,143
Total assets
$
346,020,309
$
154,413,372
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$
5,946,691
$
4,786,645
Accrued liabilities
8,681,752
7,098,905
Customer deposits
15,303,523
5,418,622
Deferred rent, current portion
20,947
20,854
Loan payable, current portion
18,289,853
2,233,110
Deferred revenue, current portion
131,971,919
62,795,079
Accreditation fees payable, current portion
1,201,477
528,027
Income taxes payable
1,239,754
1,548,121
Total current liabilities
182,655,916
84,429,363
Deferred revenue, long-term portion
31,219,144
15,053,977
Accreditation fees payable, long-term portion
299,909
115,084
Deferred rent, long-term portion
129,656
124,202
Loan payable, long-term portion
63,137,229
8,015,698
Deferred Gain
558,220
944,680
Deferred tax liability
18,198,544
4,827,192
Redeemable non-controlling interest
1,123,738
3,086,090
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; 10,577,549 shares issued and outstanding as of September 30, 2017 and 10,461,574 shares issued and outstanding as of December 31, 2016
15,284,633
14,460,500
Additional paid-in capital
1,602,181
2,857,921
Retained earnings
31,489,104
20,399,511
Accumulated other comprehensive income
322,035
99,154
Total stockholders' equity
48,697,953
37,817,086
Total liabilities and stockholders' equity
$
346,020,309
$
154,413,372
TucowsInc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
Three months ended September 30,
Nine months ended September 30,
2017
2016
2017
2016
(unaudited)
(unaudited)
Net revenues
$
85,008,484
$
49,064,327
$
238,799,847
$
141,014,329
Cost of revenues:
Cost of revenues
61,066,761
30,846,668
169,822,817
89,445,493
Network expenses (*)
2,460,696
1,287,620
7,064,458
3,925,377
Depreciation of property and equipment
823,441
278,746
2,128,417
976,419
Amortization of intangible assets
499,032
13,421
1,334,596
36,485
Total cost of revenues
64,849,930
32,426,455
180,350,288
94,383,774
Gross profit
20,158,554
16,637,872
58,449,559
46,630,555
Expenses:
Sales and marketing (*)
7,578,414
5,479,445
22,244,961
15,174,619
Technical operations and development (*)
1,910,147
1,270,107
5,402,385
3,445,118
General and administrative (*)
2,852,345
2,166,217
9,596,298
7,497,752
Depreciation of property and equipment
154,638
178,687
485,648
328,877
Amortization of intangible assets
1,745,923
279,126
4,735,221
613,041
Impairment of indefinite life intangible assets
1,500
2,866
1,500
27,745
Loss (gain) on currency forward contracts
(54,075
)
22,475
(115,276
)
(96,993
)
Total expenses
14,188,892
9,398,923
42,350,737
26,990,159
Income from operations
5,969,662
7,238,949
16,098,822
19,640,396
Other income (expenses):
Interest expense, net
(864,482
)
(135,168
)
(2,702,504
)
(301,868
)
Other income
157,453
130,147
511,831
387,787
Total other income (expenses)
(707,029
)
(5,021
)
(2,190,673
)
85,919
Income before provision for income taxes
5,262,633
7,233,928
13,908,149
19,726,315
Provision for income taxes
1,823,367
2,492,649
2,780,908
6,476,012
Net income before redeemable non-controlling interest
3,439,266
4,741,279
11,127,241
13,250,303
Redeemable non-controlling interest
(68,635
)
(254,101
)
(311,693
)
(698,583
)
Net income attributable to redeemable non-controlling interest
68,635
254,101
311,693
698,583
Net income for the period
3,439,266
4,741,279
11,127,241
13,250,303
Other comprehensive income (loss), net of tax
Unrealized income (loss) on hedging activities
309,445
(58,821
)
638,442
516,406
Net amount reclassified to earnings
(317,516
)
131,912
(415,561
)
546,836
Other comprehensive income (loss) net of tax of $4,591 and $41,580 for the three months ended September 30, 2017 and September 30, 2016, and $126,791 and $585,943 for the nine months ended September 30, 2017 and September 30, 2016
(8,071
)
73,091
222,881
1,063,242
Comprehensive income, net of tax for the period
$
3,431,195
$
4,814,370
$
11,350,122
$
14,313,545
Basic earnings per common share
$
0.33
$
0.45
$
1.06
$
1.26
Shares used in computing basic earnings per common share
10,564,311
10,432,763
10,522,841
10,549,056
Diluted earnings per common share
$
0.32
$
0.45
$
1.03
$
1.23
Shares used in computing diluted earnings per common share
10,785,342
10,619,005
10,785,050
10,736,775
(*) Stock-based compensation has been included in expenses as follows:
Network expenses
$
51,795
$
4,920
$
59,610
$
16,784
Sales and marketing
$
197,476
$
60,832
$
317,526
$
176,095
Technical operations and development
$
96,379
$
23,512
$
215,353
$
74,913
General and administrative
$
(142,748
)
$
106,175
$
241,498
$
318,062
TucowsInc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
Three months ended September 30,
Nine months ended September 30,
2017
2016
2017
2016
Cash provided by:
(unaudited)
(unaudited)
Operating activities:
Net income for the period
$
3,439,266
$
4,741,279
$
11,127,241
$
13,250,303
Items not involving cash:
Depreciation of property and equipment
978,079
457,433
2,614,065
1,305,296
Loss on write off of property and equipment
8,157
-
16,951
-
Amortization of debt discount and issuance costs
56,559
8,298
203,871
8,298
Amortization of intangible assets
2,244,955
292,547
6,069,817
649,526
Impairment of indefinite life intangible asset
1,500
2,866
1,500
27,745
Deferred income taxes
(1,445,241
)
926,733
(3,010,795
)
1,630,076
Excess tax benefits on share-based compensation expense
(443,718
)
268,565
(2,614,804
)
714,764
Amortization of deferred rent
63
13,783
5,547
30,447
Loss on disposal of domain names
7,896
4,760
24,661
25,581
Other income
(128,820
)
(128,820
)
(386,460
)
(386,460
)
Loss (gain) on change in the fair value of forward contracts
1,053
(20,114
)
(37,103
)
(292,133
)
Stock-based compensation
202,902
195,439
833,987
585,854
Change in non-cash operating working capital:
Accounts receivable
533,900
(1,623,719
)
(330,070
)
(4,435,250
)
Inventory
(642,738
)
(217,741
)
(1,738,383
)
(598,658
)
Prepaid expenses and deposits
201,757
419,939
(2,169,319
)
(939,935
)
Prepaid domain name registry and ancillary services fees
3,083,506
(1,271,948
)
570,338
(5,170,911
)
Income taxes recoverable
2,225,254
363,244
1,815,420
1,553,524
Accounts payable
(643,327
)
681,303
(4,681,314
)
(1,993
)
Accrued liabilities
981,046
(581,495
)
994,402
(1,429,069
)
Customer deposits
(1,904,666
)
(943,579
)
1,163,305
90,970
Deferred revenue
(1,424,673
)
1,666,291
7,543,013
6,772,663
Accreditation fees payable
(50,302
)
14,059
(199,832
)
51,215
Net cash provided by operating activities
7,282,408
5,269,123
17,816,038
13,441,853
Financing activities:
Proceeds received on exercise of stock options
68,065
48,376
172,903
107,672
Payment of tax obligations resulting from net exercise of stock options
(116,956
)
(76,537
)
(1,438,497
)
(318,770
)
Repurchase of common stock
-
-
-
(7,180,257
)
Proceeds received on loan payable
-
10,989,583
86,998,000
16,989,583
Repayment of loan payable
(4,572,640
)
(9,062,500
)
(15,403,380
)
(9,500,000
)
Payment of loan payable costs
(16,463
)
(383,463
)
(620,217
)
(516,963
)
Net cash provided by (used in) financing activities
(4,637,994
)
1,515,459
69,708,809
(418,735
)
Investing activities:
Additions to property and equipment
(2,859,036
)
(2,091,368
)
(9,461,105
)
(3,923,105
)
Acquisition of a portion of the minority interest in Ting Virginia, LLC.
-
-
(2,000,000
)
-
Acquisition of Enom Incorporated, net of cash
-
-
(76,237,460
)
-
Acquisition of intangible assets
(2,384,298
)
(74,400
)
(2,384,298
)
(6,324,970
)
Net cash used in investing activities
(5,243,334
)
(2,165,768
)
(90,082,863
)
(10,248,075
)
Increase (decrease) in cash and cash equivalents
(2,598,920
)
4,618,814
(2,558,016
)
2,775,043
Cash and cash equivalents, beginning of period
15,145,979
5,879,482
15,105,075
7,723,253
Cash and cash equivalents, end of period
$
12,547,059
$
10,498,296
$
12,547,059
$
10,498,296
Supplemental cash flow information:
Interest paid
$
869,749
$
93,560
$
2,717,378
$
260,506
Income taxes paid, net
$
1,307,727
$
927,826
$
6,313,308
$
2,507,699
Supplementary disclosure of non-cash investing and financing activities:
Property and equipment acquired during the period not yet paid for
$
186,418
$
89,860
$
186,418
$
89,860
Tucows Inc.
Reconciliation of Net income to Adjusted EBITDA
(In Thousands of US Dollars)
Three months ended September 30,
Nine months ended September 30,
2017
2016
2017
2016
(unaudited)
(unaudited)
Net income for the period
$
3,439
$
4,741
$
11,127
$
13,250
Depreciation of property and equipment
978
457
2,614
1,305
Amortization of intangible assets
2,245
293
6,070
650
Impairment of intangible assets
2
3
2
28
Interest expense, net
864
135
2,703
302
Provision for income taxes
1,823
2,493
2,781
6,476
Stock-based compensation
203
195
834
586
Unrealized loss (gain) on change in fair value of forward contracts
1
(20
)
(37
)
(292
)
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities
(426
)
278
(760
)
493
Acquisition and transition costs1
239
-
748
-
Adjusted EBITDA
$
9,368
$
8,575
$
26,082
$
22,798
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.