COVID-19:
Note on the Financial Impact of
As previously announced, effective
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 Mobile Services in the Network Access segment for the third quarter of 2020 are lower than those for the third quarter of 2019.
Summary Financial Results
(In Thousands of US Dollars, Except Per Share Data)
3 Months ended | 9 Months ended | |||||||
2020 (Unaudited) | 2019 (Unaudited)1 | % Change | 2020 (Unaudited) | 2019 (Unaudited) | % Change | |||
Net revenue | 74,311 | 88,129 | (15.7%) | 240,418 | 251,199 | (4.3%) | ||
Gross Profit | 19,941 | 27,574 | (27.7%) | 68,057 | 74,732 | (8.9%) | ||
Gain on Sale of Ting Customer Assets2 | 1,090 | - | n/a | 1,090 | - | n/a | ||
Net income | 716 | 4,205 | (83.0%) | 3,707 | 9,620 | (61.5%) | ||
Basic Net earnings per common share | 0.07 | 0.40 | (82.5%) | 0.35 | 0.90 | (61.1%) | ||
Adjusted EBITDA3 | 13,270 | 14,832 | (10.5%) | 38,124 | 35,749 | 6.6% | ||
Net cash provided by operating activities | 11,432 | 11,215 | 1.9% | 34,444 | 27,185 | 26.7% |
Tucows financial results for the third quarter of 2019 include the contribution of the bulk sale of domain names in the Company’s Portfolio business (generating$1.9 million in revenue) as part of its exit from that business at the end of the year.- Gain on Sale of Ting Customer Assets for the Third Quarter of 2020, proceeds of
$4.6 million under the DISH earn-out arrangement offset by the loss on disposal of Ting Customer Assets totalling$3.5 million . - This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.
Summary of Revenues and Gross profit
(In Thousands of US Dollars)
Revenue | Gross Profit | |||||
3 Months ended | 3 Months ended | |||||
2020 (Unaudited) | 2019 (Unaudited) | 2020 (Unaudited) | 2019 (Unaudited) | |||
Network Access Services: | ||||||
Mobile Services | ||||||
Retail Mobile Services | 7,019 | 21,722 | 3,579 | 10,551 | ||
Mobile Platform Services | 376 | - | 376 | - | ||
Other Professional Services | 1,457 | - | 190 | - | ||
Total Mobile Services | 8,852 | 21,722 | 4,145 | 10,551 | ||
Fiber Internet Services | 4,657 | 2,890 | 2,975 | 1,954 | ||
Total Network Access Services | 13,509 | 24,612 | 7,120 | 12,505 | ||
Domain Services: | ||||||
Wholesale | ||||||
Domain Services | 47,261 | 47,259 | 10,449 | 8,922 | ||
Value Added Services | 4,674 | 5,154 | 3,950 | 4,381 | ||
Total Wholesale | 51,935 | 52,413 | 14,399 | 13,303 | ||
Retail | 8,652 | 8,713 | 4,354 | 4,354 | ||
Portfolio4 | 215 | 2,391 | 108 | 2,211 | ||
Total Domain Services | 60,802 | 63,517 | 18,861 | 19,868 | ||
Network Expenses: | ||||||
Network, other costs | - | - | (2,612 | ) | (2,254 | ) |
Network, depreciation and amortization costs | - | - | (3,315 | ) | (2,545 | ) |
Network, impairment | (113 | ) | - | |||
Total Network expenses | - | - | (6,040 | ) | (4,799 | ) |
Total | 74,311 | 88,129 | 19,941 | 27,574 |
4. Beginning in the first quarter of 2020, portfolio revenue consisted of individual sales from Tucows’ surname portfolio following the sale of the Company’s remaining domain name portfolio in the fourth quarter of 2019.
“The third quarter was once again demonstrative of the consistency and cash generating ability of the
“Our Domains business once again saw strong transaction activity, although softening from the first two quarters of this year, as micro- and small-sized businesses and start-ups continued to establish a web presence for the first time amid the pandemic, while we continued to benefit from our focus on the quality of our customer base for gross margin contribution. In our Mobile Services business, we generated our first fees under our new MSE agreement with DISH and we look forward to increasing that revenue in the future as DISH adds customers under the Ting Mobile brand and we migrate DISH’s Boost customers to the MSE platform. In the Ting Internet business, we achieved another record quarter for capital expenditure on the network, as we continued to add passed addresses, serviceable addresses and new customers, and grow revenue and gross margin.”
Financial Results
Net revenue for the third quarter of 2020 was
Gross profit for the third quarter of 2020 was
Net income for the third quarter of 2020 was
Adjusted EBITDA1 for the third quarter of 2020 was
Cash and cash equivalents at the end of the third quarter of 2020 was
Notes:
1. Adjusted EBITDA
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
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, loss on disposal of Ting Mobile customer assets, 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-
The following table reconciles net income to adjusted EBITDA (dollars in thousands):
3 months ended | 9 months ended | |||||||
2020 (Unaudited) | 2019 (Unaudited) | 2020 (Unaudited) | 2019 (Unaudited) | |||||
Net income for the period | 716 | 4,205 | 3,707 | 9,620 | ||||
Depreciation of property and equipment | 3,110 | 2,348 | 9,255 | 6,445 | ||||
Impairment of property and equipment | 113 | - | 1,638 | - | ||||
Loss on disposition of property and equipment | - | 73 | - | 73 | ||||
Amortization of intangible assets | 2,645 | 2,858 | 8,776 | 7,463 | ||||
Impairment of definite life intangible assets | - | - | 1,431 | - | ||||
Disposal of Ting Mobile customer assets | 3,513 | - | 3,513 | - | ||||
Interest expense, net | 760 | 1,263 | 2,756 | 3,549 | ||||
Accretion of contingent consideration | 86 | - | 258 | - | ||||
Provision for income taxes | 840 | 3,133 | 2,390 | 6,209 | ||||
Stock-based compensation | 1,016 | 830 | 2,664 | 2,040 | ||||
Unrealized loss (gain) on change in fair value of forward contracts | (175 | ) | (16 | ) | (263 | ) | (204 | ) |
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities | 81 | 88 | 479 | (402 | ) | |||
Acquisition and transition costs* | 565 | 50 | 1,520 | 956 | ||||
Adjusted EBITDA | 13,270 | 14,832 | 38,124 | 35,749 | ||||
*Acquisition and other costs represent transaction-related expenses, transitional expenses, such as duplicative post-acquisition expenses, primarily related to our acquisition of Ascio in |
Conference Call
Concurrent with the dissemination of its quarterly financial results news release at
About
This release includes forward-looking statements as that term is defined in the
Consolidated Balance Sheets | 2020 | 2019 | ||||
(Dollar amounts in thousands of | (unaudited) | (unaudited) | ||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 10,155 | $ | 20,393 | ||
Accounts receivable | 12,623 | 14,564 | ||||
Inventory | 1,139 | 3,457 | ||||
Prepaid expenses and deposits | 13,703 | 13,478 | ||||
Derivative instrument asset, current portion | 2,402 | 731 | ||||
Prepaid domain name registry and ancillary services fees, current portion | 95,694 | 91,252 | ||||
Income taxes recoverable | 3,553 | 1,800 | ||||
Total current assets | 139,269 | 145,675 | ||||
Prepaid domain name registry and ancillary services fees, long-term portion | 17,546 | 17,915 | ||||
Property and equipment | 109,767 | 82,121 | ||||
Right of use operating lease asset | 11,625 | 11,335 | ||||
Contract costs | 359 | 1,400 | ||||
Intangible assets | 50,087 | 57,654 | ||||
116,270 | 109,818 | |||||
Total assets | $ | 444,923 | $ | 425,918 | ||
Liabilities and Stockholders' Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 8,552 | $ | 6,671 | ||
Accrued liabilities | 9,525 | 9,373 | ||||
Customer deposits | 14,372 | 14,074 | ||||
Derivative instrument liability | 135 | - | ||||
Operating lease liability, current portion | 1,692 | 1,413 | ||||
Deferred revenue, current portion | 128,569 | 123,101 | ||||
Accreditation fees payable, current portion | 975 | 952 | ||||
Income taxes payable | 881 | 1,324 | ||||
Total current liabilities | 164,701 | 156,908 | ||||
Derivative instrument liability | 112 | - | ||||
Deferred revenue, long-term portion | 25,661 | 26,202 | ||||
Accreditation fees payable, long-term portion | 200 | 216 | ||||
Operating lease liability, long-term portion | 9,679 | 9,424 | ||||
Loan payable | 113,672 | 113,503 | ||||
Other long-term liability | 3,330 | - | ||||
Deferred tax liability | 27,187 | 25,471 | ||||
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; 10,593,514 shares issued and outstanding as of | 19,989 | 16,633 | ||||
Additional paid-in capital | 983 | 880 | ||||
Retained earnings | 78,038 | 76,208 | ||||
Accumulated other comprehensive income (loss) | 1,371 | 473 | ||||
Total stockholders' equity | 100,381 | 94,194 | ||||
Total liabilities and stockholders' equity | $ | 444,923 | $ | 425,918 | ||
Three months ended | Nine months ended | |||||||||||
Consolidated Statements of Operations and Comprehensive Income | 2020 | 2019 | 2020 | 2019 | ||||||||
(Dollar amounts in thousands of | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||
Net revenues | $ | 74,311 | $ | 88,129 | $ | 240,418 | $ | 251,199 | ||||
Cost of revenues: | ||||||||||||
Cost of revenues | 48,330 | 55,756 | 153,308 | 162,561 | ||||||||
Network expenses (*) | 2,612 | 2,254 | 7,513 | 7,034 | ||||||||
Depreciation of property and equipment | 2,985 | 2,231 | 8,892 | 6,070 | ||||||||
Amortization of intangible assets | 330 | 314 | 1,010 | 802 | ||||||||
Impairment of property and equipment | 113 | - | 1,638 | - | ||||||||
Total cost of revenues | 54,370 | 60,555 | 172,361 | 176,467 | ||||||||
Gross profit | 19,941 | 27,574 | 68,057 | 74,732 | ||||||||
Expenses: | ||||||||||||
Sales and marketing (*) | 8,318 | 8,769 | 26,521 | 26,366 | ||||||||
Technical operations and development (*) | 3,162 | 2,876 | 8,980 | 8,151 | ||||||||
General and administrative (*) | 4,868 | 4,574 | 15,074 | 13,818 | ||||||||
Depreciation of property and equipment | 125 | 117 | 363 | 375 | ||||||||
Loss on disposition of property and equipment | - | 73 | - | 73 | ||||||||
Amortization of intangible assets | 2,315 | 2,544 | 7,766 | 6,661 | ||||||||
Impairment of definite life intangible assets | - | - | 1,431 | - | ||||||||
Loss (gain) on currency forward contracts | (159 | ) | 20 | (99 | ) | (90 | ) | |||||
Total expenses | 18,629 | 18,973 | 60,036 | 55,354 | ||||||||
Income from operations | 1,312 | 8,601 | 8,021 | 19,378 | ||||||||
Other income (expenses): | ||||||||||||
Interest expense, net | (760 | ) | (1,263 | ) | (2,756 | ) | (3,549 | ) | ||||
Gain on sale of Ting Customer Assets, net | 1,090 | - | 1,090 | - | ||||||||
Other income | (86 | ) | - | (258 | ) | - | ||||||
Total other income (expenses) | 244 | (1,263 | ) | (1,924 | ) | (3,549 | ) | |||||
Income before provision for income taxes | 1,556 | 7,338 | 6,097 | 15,829 | ||||||||
Provision for income taxes | 840 | 3,133 | 2,390 | 6,209 | ||||||||
Net income for the period | 716 | 4,205 | 3,707 | 9,620 | ||||||||
Other comprehensive income, net of tax | ||||||||||||
Unrealized income (loss) on hedging activities | 729 | (175 | ) | 609 | 614 | |||||||
Net amount reclassified to earnings | 46 | 26 | 289 | 167 | ||||||||
Other comprehensive income (loss) net of tax expense (income) of | 775 | (149 | ) | 898 | 781 | |||||||
Comprehensive income, net of tax for the period | $ | 1,491 | $ | 4,056 | $ | 4,605 | $ | 10,401 | ||||
Basic earnings per common share | $ | 0.07 | $ | 0.40 | $ | 0.35 | $ | 0.90 | ||||
Shares used in computing basic earnings per common share | 10,577,731 | 10,626,754 | 10,585,785 | 10,639,544 | ||||||||
Diluted earnings per common share | $ | 0.07 | $ | 0.39 | $ | 0.35 | $ | 0.89 | ||||
Shares used in computing diluted earnings per common share | 10,682,808 | 10,745,834 | 10,679,162 | 10,798,099 | ||||||||
(*) Stock-based compensation has been included in expenses as follows: | ||||||||||||
Network expenses | $ | 138 | $ | 95 | $ | 333 | $ | 224 | ||||
Sales and marketing | $ | 456 | $ | 363 | $ | 1,203 | $ | 857 | ||||
Technical operations and development | $ | 208 | $ | 179 | $ | 558 | $ | 428 | ||||
General and administrative | $ | 214 | $ | 193 | $ | 570 | $ | 531 | ||||
Three months ended | Nine months ended | |||||||||||
Consolidated Statements of Cash Flows | 2020 | 2019 | 2020 | 2019 | ||||||||
(Dollar amounts in thousands of | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||
Cash provided by: | ||||||||||||
Operating activities: | ||||||||||||
Net income for the period | $ | 716 | $ | 4,205 | $ | 3,707 | $ | 9,620 | ||||
Items not involving cash: | ||||||||||||
Depreciation of property and equipment | 3,110 | 2,348 | 9,255 | 6,445 | ||||||||
Loss on write off/impairment of property and equipment | 113 | 120 | 1,638 | 142 | ||||||||
Amortization of debt discount and issuance costs | 68 | 64 | 202 | 232 | ||||||||
Amortization of intangible assets | 2,645 | 2,858 | 8,776 | 7,463 | ||||||||
Net amortization contract costs | (15 | ) | (61 | ) | 109 | (8 | ) | |||||
Accretion of contingent consideration | 86 | - | 258 | - | ||||||||
Impairment of definite life intangible asset | - | - | 1,431 | - | ||||||||
Foreign exchange impact of impairment of definite life intangible asset | - | - | 223 | - | ||||||||
Deferred income taxes (recovery) | 180 | (170 | ) | (927 | ) | 1,741 | ||||||
Excess tax benefits on share-based compensation expense | (164 | ) | (53 | ) | (508 | ) | (790 | ) | ||||
137 | (54 | ) | 249 | (5 | ) | |||||||
Loss on disposal of domain names | - | 66 | 15 | 72 | ||||||||
Loss (gain) on change in the fair value of forward contracts | (175 | ) | (16 | ) | (263 | ) | (204 | ) | ||||
Disposal of Ting Mobile customer assets | 3,513 | - | 3,513 | - | ||||||||
Stock-based compensation | 1,016 | 830 | 2,664 | 2,040 | ||||||||
Change in non-cash operating working capital: | ||||||||||||
Accounts receivable | 118 | (1,763 | ) | 2,670 | (1,920 | ) | ||||||
Inventory | (123 | ) | (644 | ) | 1,681 | (128 | ) | |||||
Prepaid expenses and deposits | 2,905 | (329 | ) | (317 | ) | (3,243 | ) | |||||
Prepaid domain name registry and ancillary services fees | 984 | 3,819 | (4,073 | ) | 3,754 | |||||||
Income taxes recoverable | (2,475 | ) | 1,576 | (1,681 | ) | (1,299 | ) | |||||
Accounts payable | 509 | (2,394 | ) | 759 | (2,778 | ) | ||||||
Accrued liabilities | (668 | ) | 3,687 | (334 | ) | 7,274 | ||||||
Customer deposits | 69 | 1,394 | 463 | 873 | ||||||||
Deferred revenue | (1,070 | ) | (4,200 | ) | 4,927 | (2,062 | ) | |||||
Accreditation fees payable | (47 | ) | (68 | ) | 7 | (34 | ) | |||||
Net cash provided by operating activities | 11,432 | 11,215 | 34,444 | 27,185 | ||||||||
Financing activities: | ||||||||||||
Proceeds received on exercise of stock options | 632 | 118 | 678 | 312 | ||||||||
Payment of tax obligations resulting from net exercise of stock options | (132 | ) | (20 | ) | (479 | ) | (544 | ) | ||||
Repurchase of common stock | - | (4,986 | ) | (3,281 | ) | (4,986 | ) | |||||
Proceeds received on loan payable | - | 5,000 | - | 45,371 | ||||||||
Repayment of loan payable | - | 3 | - | (4,600 | ) | |||||||
Payment of loan payable costs | - | 2 | (32 | ) | (639 | ) | ||||||
Net cash (used in) provided by financing activities | 500 | 117 | (3,114 | ) | 34,914 | |||||||
Investing activities: | ||||||||||||
Additions to property and equipment | (10,636 | ) | (10,308 | ) | (32,729 | ) | (31,157 | ) | ||||
Acquisition of | - | - | (8,770 | ) | - | |||||||
Acquisition of Ascio Technologies (net of cash of | - | - | - | (28,024 | ) | |||||||
Acquisition of intangible assets | - | (1,038 | ) | (69 | ) | (3,566 | ) | |||||
Net cash used in investing activities | (10,636 | ) | (11,346 | ) | (41,568 | ) | (62,747 | ) | ||||
Increase (decrease) in cash and cash equivalents | 1,296 | (14 | ) | (10,238 | ) | (648 | ) | |||||
Cash and cash equivalents, beginning of period | 8,859 | 12,003 | 20,393 | 12,637 | ||||||||
Cash and cash equivalents, end of period | $ | 10,155 | $ | 11,989 | $ | 10,155 | $ | 11,989 | ||||
Supplemental cash flow information: | ||||||||||||
Interest paid | $ | 635 | $ | 1,267 | $ | 2,638 | $ | 3,561 | ||||
Income taxes paid, net | $ | 3,249 | $ | 1,959 | $ | 5,449 | $ | 6,123 | ||||
Supplementary disclosure of non-cash investing and financing activities: | ||||||||||||
Property and equipment acquired during the period not yet paid for | $ | 1,697 | $ | 991 | $ | 1,697 | $ | 991 | ||||
Fair value of shares issued for acquisition of | $ | - | $ | - | $ | 2,000 | $ | - | ||||
Fair value of contingent consideration for acquisition of | $ | - | $ | - | $ | 3,072 | $ | - | ||||
Acquisition of intangible assets transferred from other assets | $ | - | $ | 2,501 | $ | - | $ | - | ||||
Three months ended | Nine months ended | |||||||||||
Reconciliation of Net income to Adjusted EBITDA | 2020 | 2019 | 2020 | 2019 | ||||||||
(Dollar amounts in thousands of | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||
Net income for the period | $ | 716 | $ | 4,205 | $ | 3,707 | $ | 9,620 | ||||
Depreciation of property and equipment | 3,110 | 2,348 | 9,255 | 6,445 | ||||||||
Impairment of property and equipment | 113 | - | 1,638 | - | ||||||||
Loss on disposiiton of property and equipment | - | 73 | - | 73 | ||||||||
Amortization of intangible assets | 2,645 | 2,858 | 8,776 | 7,463 | ||||||||
Disposal of Ting Mobile customer assets | 3,513 | - | 3,513 | - | ||||||||
Impairment of definite life intangible asset | - | - | 1,431 | - | ||||||||
Interest expense, net | 760 | 1,263 | 2,756 | 3,549 | ||||||||
Accretion of contingent consideration | 86 | - | 258 | - | ||||||||
Provision for income taxes | 840 | 3,133 | 2,390 | 6,209 | ||||||||
Stock-based compensation | 1,016 | 830 | 2,664 | 2,040 | ||||||||
Unrealized loss (gain) on change in fair value of forward contracts | (175 | ) | (16 | ) | (263 | ) | (204 | ) | ||||
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities | 81 | 88 | 479 | (402 | ) | |||||||
Acquisition and other costs1 | 565 | 50 | 1,520 | 956 | ||||||||
Adjusted EBITDA | $ | 13,270 | $ | 14,832 | $ | 38,124 | $ | 35,749 | ||||
1Acquisition and other costs represents transaction-related expenses, transitional expenses, such as duplicative post-acquisition expenses, primarily related to our acquisition of Ascio in |
Source:
2020 GlobeNewswire, Inc., source