Tucows Reports Continuing Strong Financial Results for Third Quarter of 2017

Quarter Highlighted by 73% Year-Over-Year Growth in Revenue

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 EBITDA^1,2	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.

Contact:
Lawrence Chamberlain
(416) 519-4196
lawrence.chamberlain@loderockadvisors.com


Tucows Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)

	September 30,		December 31,
	2017		2016
	(unaudited)		(unaudited)

Assets

Current assets:
Cash and cash equivalents	$	12,547,059	$	15,105,075
Accounts receivable		13,726,565		10,925,622
Inventory		2,949,172		1,210,789
Prepaid expenses and deposits		14,712,889		6,250,555
Derivative instrument asset, current portion		559,663		172,888
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


Tucows Inc.
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


Tucows Inc.
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.

Legal Disclaimer:

EIN Presswire provides this news content "as is" without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the author above.

You just read:

Tucows Reports Continuing Strong Financial Results for Third Quarter of 2017

Distribution channels: Banking, Finance & Investment Industry, Technology

EIN Presswire's priority is author transparency. We do our best to weed out false and misleading content. The content above is the sole responsibility of the author who makes it available. If you have any complaints, kindly contact the author above.