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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Tucows Inc.    TCX

TUCOWS INC.

(TCX)
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Tucows Reports Financial Results for Fourth Quarter 2019

02/12/2020 | 05:06pm EST

TORONTO, Feb. 12, 2020 (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 fourth quarter ended December 31, 2019. All figures are in U.S. dollars.

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

 3 Months Ended December 3112 Months Ended December 31
2019
(Unaudited)
2018
(Unaudited)
%
Change
2019
(Unaudited)
2018
(Unaudited)
%
Change
Net revenue85,94685,6120.4%337,145346,013-3%
Net income5,7784,43630%15,39817,135-10%
Basic Net earnings per common share0.550.4231%1.451.62-10%
Adjusted EBITDA1,216,15516,623-3%51,90550,0544%
Net cash provided by operating activities13,19610,66824%40,38137,2099%
  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-month and 12-month periods ended December 31, 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 $0.5 million and $2.5 million, respectively.

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

 RevenueGross Profit
 3 Months ended
December 31
3 Months ended
December 31
 2019
(Unaudited)
2018
(Unaudited)
2019
(Unaudited)
2018
(Unaudited)
Network Access Services:
Mobile Services21,14022,5119,44511,093
Other Services3,0292,3202,0621,429
Total Network Access Services24,16924,83111,50712,522
Domain Services:
Wholesale    
Domain Services46,62243,3969,0857,752
Value Added Services4,8094,1804,1283,438
Total Wholesale51,43147,57613,21311,190
     
Retail8,6488,8804,6824,475
Portfolio1,6984,3251,5263,900
Total Domain Services61,77760,78119,42119,565
Network Expenses:
Network, other costs--(2,156)(2,256)
Network, depreciation and amortization costs--(2,727)(2,100)
Total Network expenses--(4,883)(4,356)
     
Total85,94685,61226,04527,731

“Our fourth quarter results were once again demonstrative of the consistency in the Tucows business. Continuing strong cash generation from our Domains and Ting Mobile businesses contributed to record cash from operations for the year of $40 million to support investment in our outsized Ting Internet growth opportunity,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc.

Mr. Noss added, “2019 was a year in which we took meaningful steps to position each of our businesses for long-term success. In our Domains business, we focused on strengthening the quality of the wholesale customer base to maximize gross profit of that channel, which expanded 15% over the prior year, as we made steady progress on our platform work to support future growth. In our Ting Mobile business, we announced positive changes to our service provider agreements that further enhance our already very compelling offering and provide much improved economics, setting the stage for better long-term prospects for our mobile business. And at Ting Internet, we invested more than $32 million in our network build, growing the number of passed homes by more than 60% and expanding our customer base by 46%, while adding four new towns that expanded our potential serviceable addresses by 74%. Tucows remains very well positioned to capitalize the greatest opportunity in telecom in a couple of generations.”

Financial Results

Net revenue for the fourth quarter of 2019 increased 0.4% to $85.9 million from $85.6 million for the fourth quarter of 2018.

Net income for the fourth quarter of 2019 increased 30% to $5.8 million, or $0.55 per share from $4.4 million, or $0.42 per share, for the fourth quarter of 2018. 

Adjusted EBITDA1 for the fourth quarter of 2019 decreased 3% to $16.2 million from $16.6 million for the fourth quarter of 2018. Adjusted EBITDA for the fourth 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 $0.5 million.

Cash and cash equivalents at the end of the fourth quarter of 2019 was $20.4 million compared with $12.0 million at the end of the third quarter of 2019 and $12.6 million at the end of the fourth 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
December 31
12 months ended
December 31
 2019
(unaudited)
2018
(unaudited)
2019
(unaudited)
2018
(unaudited)
Net income for the period 5,7784,43615,39817,135
Depreciation of property and equipment2,5161,7168,9615,722
Loss on disposition of property and equipment--73-
Amortization of intangible assets2,8702,29010,3339,243
Interest expense, net1,2209264,7693,687
Provision for income taxes2,9645,2399,1739,020
Stock-based compensation8366702,8762,574
Unrealized loss (gain) on change in fair value of forward contracts(109)194(313)207
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities(180)749(581)940
Acquisition and transition costs*2604031,2161,526
     
Adjusted EBITDA16,15516,62351,90550,054
*Acquisition and other costs represent 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 Call
Concurrent 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, February 18), 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 Tuesday, February 25 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 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), 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 36,000 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)
     
  December 31, December 31,
   2019  2018 *
  (unaudited) (unaudited)
     
Assets    
     
Current assets:    
Cash and cash equivalents $20,393  $12,637 
Accounts receivable  14,564   10,837 
Inventory  3,457   3,775 
Prepaid expenses and deposits  13,478   15,472 
Derivative instrument asset, current portion  731   - 
Prepaid domain name registry and ancillary services fees, current portion  91,252   87,782 
Income taxes recoverable  1,800   1,423 
Total current assets  145,675   131,926 
     
Prepaid domain name registry and ancillary services fees, long-term portion  17,915   18,745 
Property and equipment  82,121   48,065 
Right of use operating lease asset  11,335   - 
Contract costs  1,400   1,390 
Intangible assets  57,654   49,395 
Goodwill  109,818   90,054 
Total assets $425,918  $339,575 
     
     
Liabilities and Stockholders' Equity    
     
Current liabilities:    
Accounts payable $6,671  $8,445 
Accrued liabilities  9,373   5,899 
Customer deposits  14,074   11,919 
Derivative instrument liability  -   1,276 
Deferred rent, current portion  -   21 
Operating lease liability, current portion  1,413   - 
Loan payable, current portion  -   18,400 
Deferred revenue, current portion  123,101   116,734 
Accreditation fees payable, current portion  952   985 
Income taxes payable  1,324   1,668 
Total current liabilities  156,908   165,347 
     
Deferred revenue, long-term portion  26,202   26,960 
Accreditation fees payable, long-term portion  216   250 
Deferred rent, long-term portion  -   116 
Operating lease liability, long-term portion  9,424   - 
Loan payable, long-term portion  113,503   46,201 
Deferred tax liability  25,471   20,925 
     
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; 10,585,159 shares issued and outstanding as of December 31, 2019 and 10,627,988 shares issued and outstanding as of December 31, 2018  16,633   15,823 
Additional paid-in capital  880   3,953 
Retained earnings  76,208   60,810 
Accumulated other comprehensive income (loss)  473   (810)
Total stockholders' equity  94,194   79,776 
Total liabilities and stockholders' equity $425,918  $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 December 31, Year ended December 31,
  2019
 2018 * 2019
 2018 *
           
  (unaudited)
 (unaudited)
         
Net revenues $85,946  $85,612  $337,145  $346,013 
         
Cost of revenues:        
Cost of revenues 55,018  53,525  217,579  232,103 
Network expenses (*) 2,156  2,256  9,190  9,846 
Depreciation of property and equipment 2,405  1,601  8,475  5,298 
Amortization of intangible assets 322  499  1,124  1,996 
Total cost of revenues 59,901  57,881  236,368  249,243 
         
Gross profit 26,045  27,731  100,777  96,770 
         
Expenses:        
Sales and marketing (*) 7,904  8,434  34,270  33,063 
Technical operations and development (*) 1,566  2,091  9,717  8,748 
General and administrative (*) 4,062  4,804  17,880  17,710 
Depreciation of property and equipment 111  115  486  424 
Loss on disposition of property and equipment -  -  73  - 
Amortization of intangible assets 2,548  1,791  9,209  7,247 
Loss (gain) on currency forward contracts (108) 232  (198) 254 
Total expenses 16,083  17,467  71,437  67,446 
         
Income from operations 9,962  10,264  29,340  29,324 
         
Other income (expenses):        
Interest expense, net (1,220) (926) (4,769) (3,687)
Other income, net -  337  -  518 
Total other income (expenses) (1,220) (589) (4,769) (3,169)
         
Income before provision for income taxes 8,742  9,675  24,571  26,155 
         
Provision for income taxes 2,964  5,239  9,173  9,020 
Net income before redeemable non-controlling interest 5,778  4,436  15,398  17,135 
         
Redeemable non-controlling interest -  -  -  (26)
         
Net income attributable to redeemable non-controlling interest-  -  -  26 
Net income for the period 5,778  4,436  15,398  17,135 
         
Other comprehensive income, net of tax        
Unrealized income (loss) on hedging activities 487  (910) 1,101  (1,022)
Net amount reclassified to earnings 15  136  182  212 
Other comprehensive income (loss) net of tax (expense) recovery of ($161) and $241 for the three months ended December 31, 2019 and December 31, 2018, ($412) and $259 for the years ended December 31, 2019 and December 31, 2018 502  (774) 1,283  (810)
         
Comprehensive income, net of tax for the period $6,280  $3,662  $16,681  $16,325 
         
Basic earnings per common share $0.55  $0.42  $1.45  $1.62 
         
Shares used in computing basic earnings per common share 10,577,080  10,621,181  10,623,799  10,604,722 
         
Diluted earnings per common share $0.54  $0.41  $1.43  $1.59 
         
Shares used in computing diluted earnings per common share 10,693,430  10,791,940  10,772,812  10,794,170 
         
         
         
(*) Stock-based compensation has been included in expenses as follows:        
Network expenses $82  $70  $307  $223 
Sales and marketing $395  $287  $1,251  $1,025 
Technical operations and development $168  $135  $596  $636 
General and administrative $191  $179  $722  $690 
         
*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 December 31, Year ended December 31,
  2019 2018 * 2019 2018 *
         
Cash provided by: (unaudited)
 (unaudited)
Operating activities:        
Net income for the period $5,778  $4,436  $15,398  $17,135 
Items not involving cash:        
Depreciation of property and equipment 2,516  1,716  8,961  5,722 
Loss on write off of property and equipment -  -  142  - 
Amortization of debt discount and issuance costs 65  70  297  281 
Amortization of intangible assets 2,870  2,290  10,333  9,243 
Net amortization contract costs (2) (7) (10) 14 
Deferred income taxes (recovery) (456) 1,899  1,285  1,038 
Excess tax benefits on share-based compensation expense 156  (165) (634) (697)
Amortization of deferred rent -  (5) -  (14)
Net Right of use operating assets/Operating lease liability (27) -  (32) - 
Loss on disposal of domain names 43  271  115  341 
Other income -  (258) -  (429)
Loss (gain) on change in the fair value of forward contracts (109) 194  (313) 207 
Stock-based compensation 836  670  2,876  2,574 
Change in non-cash operating working capital:        
Accounts receivable (1,095) 692  (3,015) 1,539 
Inventory 446  (635) 318  (831)
Prepaid expenses and deposits 6,147  (918) 2,904  (1,286)
Prepaid domain name registry and ancillary services fees 3,924  4,699  7,678  20,476 
Income taxes recoverable 1,210  2,398  (89) 2,691 
Accounts payable 1,556  (877) (1,222) 171 
Accrued liabilities (4,945) (978) 2,329  (513)
Customer deposits (846) 34  27  (3,336)
Deferred revenue (4,838) (4,798) (6,900) (16,888)
Accreditation fees payable (33) (60) (67) (229)
Net cash provided by operating activities 13,196  10,668  40,381  37,209 
         
Financing activities:        
Proceeds received on exercise of stock options 83  50  395  112 
Payment of tax obligations resulting from net exercise of stock options (4) (41) (548) (445)
Repurchase of common stock -  -  (4,986) - 
Proceeds received on loan payable 12,000  4,500  57,371  7,000 
Repayment of loan payable (3,530) (4,384) (8,130) (19,596)
Payment of loan payable costs (2) -  (641) (8)
Net cash (used in) provided by financing activities 8,547  125  43,461  (12,937)
         
Investing activities:        
Additions to property and equipment (12,913) (8,480) (44,070) (27,919)
Acquisition of a portion of the minority interest in Ting Virginia, LLC -  -  -  (1,200)
Acquisition of Ascio Technologies Inc. (net of cash of $1,437) (426) -  (28,450) - 
Acquisition of intangible assets -  (451) (3,566) (565)
Net cash used in investing activities (13,339) (8,931) (76,086) (29,684)
         
(Decrease) increase in cash and cash equivalents 8,404  1,862  7,756  (5,412)
         
Cash and cash equivalents, beginning of period 11,989  10,775  12,637  18,049 
Cash and cash equivalents, end of period $20,393  $12,637  $20,393  $12,637 
         
Supplemental cash flow information:        
Interest paid $1,224  $931  $4,785  $3,712 
Income taxes paid, net $1,818  $1,742  $7,941  $7,112 
         
Supplementary disclosure of non-cash investing and financing activities:        
Property and equipment acquired during the period not yet paid for $548  $1,462  $548  $1,462 
         
*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 December 31, Year ended December 31,
(unaudited)  2019 (unaudited) 2018 (unaudited)
 2019 (unaudited) 2018 (unaudited)
            
Net income for the period $5,778  $4,436  $15,398  $17,135 
Depreciation of property and equipment 2,516  1,716  8,961  5,722 
Loss on disposition of property and equipment -  -  73  - 
Amortization of intangible assets 2,870  2,290  10,333  9,243 
Interest expense, net 1,220  926  4,769  3,687 
Provision for income taxes 2,964  5,239  9,173  9,020 
Stock-based compensation 836  670  2,876  2,574 
Unrealized loss (gain) on change in fair value of forward contracts (109) 194  (313) 207 
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities (180) 749  (581) 940 
Acquisition and other costs1 260  403  1,216  1,526 
           
Adjusted EBITDA $16,155  $16,623  $51,905  $50,054 
           
1Acquisition 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

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Financials (USD)
Sales 2019 337 M - -
Net income 2019 15,4 M - -
Net Debt 2019 104 M - -
P/E ratio 2019 43,2x
Yield 2019 -
Capitalization 769 M 769 M -
EV / Sales 2018 1,99x
EV / Sales 2019 2,25x
Nbr of Employees 633
Free-Float 88,0%
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Managers
NameTitle
Elliot Noss President, Chief Executive Officer & Director
Allen Karp Co-Chairman
Rawleigh H. Ralls Co-Chairman
Davinder Singh Chief Financial Officer, Secretary & Executive VP
Jody Stocks Vice President-Engineering
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