Tucows Reports Continuing Strong Financial Results for Fourth Quarter and Full Year 2018

TORONTO, Feb. 14, 2018 (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, 2017. All figures are in U.S. dollars.

Summary Financial Results
(In Thousands of US Dollars, Except Per Share Data)
 
  3 Months Ended December 31 12 Months Ended December 31
2017
(Unaudited)
2016
(Unaudited)
%
Change
2017
(Unaudited)
2016
(Unaudited)
%
Change
Net revenue 90,621 48,805 86 % 329,421 189,819 74 %
Net income1 11,199 2,817 298 % 22,327 16,067 39 %
Basic Net earnings per common share1 1.06 0.27 293 % 2.12 1.53 39 %
Adjusted EBITDA2,3 15,275 7,333 108 % 41,356 30,130 37 %
Net cash provided by operating activities 14,081 9,067 55 % 31,897 22,509 42 %
                 
  1. Net Income and Earnings Per Share for the fourth quarter and Fiscal 2017 reflect a net positive implementation impact from the Tax Cuts and Jobs Act of 2017 of $5.8 million and $0.55 per share, respectively.
  2. This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.
  3. Adjusted EBITDA for the fourth quarter and twelve 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 $0.8 million and $7.8 million for the fourth quarter and first twelve months of 2017, respectively.
Summary of Revenues and Gross Margin
(In Thousands of US Dollars)
 
  Revenue Gross Margin
  3 Months ended
December 31
3 Months ended
December 31
  2017
(Unaudited)
2016
(Unaudited)
2017
(Unaudited)
2016
(Unaudited)
Network Access Services:
Mobile Services 23,795 17,839 11,094   8,951  
Other Services 1,357 919 405   254  
Total Network Access Services 25,152 18,758 11,499   9,205  
         
Domain Services:
Wholesale        
Domain Services 48,320 23,130 6,514   4,398  
Value Added Services 4,538 2,336 3,978   1,819  
Total Wholesale 52,858 25,466 10,492   6,217  
         
Retail 8,711 3,883 4,141   2,086  
Portfolio 3,900 698 3,377   555  
Total Domain Services 65,469 30,047 18,010   8,858  
         
Network Expenses:
Network, other costs (2,260 ) (1,285 )
Network, depreciation and amortization costs (1,513 ) (355 )
Total Network expenses (3,773 ) (1,640 )
         
Total revenue/gross margin 90,621 48,805 25,736   16,423  
             

“The fourth quarter saw strong growth across each of our key financial metrics, capping off a year in which we delivered record financial performance while achieving our operational goals,”  said Elliot Noss, President and Chief Executive Officer, Tucows Inc.   “We completed a major acquisition that solidified our position as the second largest domain name registrar in the world, and remain on track to realize acquisition synergies that will contribute approximately $5 million in incremental annualized EBITDA by 2019.  Ting Mobile posted its sixth straight year of top line and bottom line growth.  And on Ting Internet, we continued to build the foundation of a business that we expect will become a meaningful contributor to our business and deliver growth for many years to come.”

Financial Results

Net revenue for the fourth quarter of 2017 increased 86% to $90.6 million from $48.8 million for the fourth quarter of 2016.

Net income for the fourth quarter of 2017 increased to $11.2 million, or $1.06 per share, from $2.8 million, or $0.27 per share, for the fourth quarter of 2016. Net income for the fourth quarter of 2017 was positively impacted by the tax related implementation impacts from the Tax Cuts and Jobs Act of 2017 for $5.8 million or $0.55 per share.

Adjusted EBITDA2 for the fourth quarter of 2017 increased 108% to $15.3 million from $7.3 million for the fourth quarter of 2016.  The increase in adjusted EBITDA2 was the result of the acquisition of Enom in January 2017, an outsized domain portfolio sale and growth in Ting Mobile.

Cash and cash equivalents at the end of the fourth quarter of 2017 increased to $18.0 million from $12.5 million at the end of the third quarter of 2017 and $15.1 million at the end of the fourth 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 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 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
December 31
12 months ended
December 31
  2017
(unaudited)
2016
(unaudited)
2017
(unaudited)
2016
(unaudited)
Net income for the period 11,199     2,817   22,327   16,067  
Depreciation of property and equipment   1,114     518   3,728   1,824  
Amortization of intangible assets   2,330     304   8,400   953  
Impairment of intangible assets   110   15   111   43  
Interest expense, net   865   148   3,567   450  
Provision for income taxes (1,033 )   2,570   1,748   9,046  
Stock-based compensation   623   214   1,457   799  
Unrealized loss (gain) on change in fair value of forward contracts 54     (31 ) 17   (323 )
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities   (45 ) 336   (805 ) 829  
Acquisition and transition costs* 58     442   806   442  
         
Adjusted EBITDA   15,275     7,333   41,356   30,130  
*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, Wednesday, February 14, 2018 at 8:00 a.m. (ET) to discuss the Company’s fourth quarter 2018 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 7376628 followed by the pound key. The telephone replay will be available until Wednesday, February 21, 2018 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).

Tucows  Inc. 
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
         
    December 31,   December 31,
     2017    2016
    (unaudited)   (unaudited)
         
Assets        
         
Current assets:        
Cash and cash equivalents   $   18,049,164   $   15,105,075
Accounts receivable     12,376,104     10,925,622
Inventory     2,944,246     1,210,789
Prepaid expenses and deposits     14,185,586     6,250,555
Derivative instrument asset, current portion         172,888
Prepaid domain name registry and ancillary services fees, current portion     103,302,472     49,396,737
Income taxes recoverable     3,003,873     220,451
Total current assets     153,861,445     83,282,117
         
Prepaid domain name registry and ancillary services fees, long-term portion     23,700,931     10,993,156
Property and equipment     24,620,298     13,450,438
Deferred tax asset         5,708,725
Intangible assets     58,414,178     19,973,793
Goodwill     90,053,483     21,005,143
Total assets   $ 350,650,335   $ 154,413,372
         
         
Liabilities and Stockholders’ Equity        
         
Current liabilities:        
Accounts payable   $   7,026,282   $   4,786,645
Accrued liabilities     6,412,578     7,098,905
Customer deposits     15,255,305     5,418,622
Deferred rent, current portion     20,991     20,854
Loan payable, current portion     18,289,853     2,233,110
Deferred revenue, current portion     129,154,622     62,795,079
Accreditation fees payable, current portion     1,174,733     528,027
Income taxes payable     1,226,157     1,548,121
Total current liabilities     178,560,521     84,429,363
         
Deferred revenue, long-term portion     31,426,906     15,053,977
Accreditation fees payable, long-term portion     288,755     115,084
Deferred rent, long-term portion     129,777     124,202
Loan payable, long-term portion     58,634,174     8,015,698
Deferred Gain     429,400     944,680
Deferred tax liability     19,833,678     4,827,192
         
Redeemable non-controlling interest     1,136,390     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; 10,583,879 shares issued and outstanding as of December 31, 2017 and 10,461,574 shares issued and outstanding as of December 31, 2016     15,368,161     14,460,500
Additional paid-in capital     2,166,768     2,857,921
Retained earnings     42,675,805     20,399,511
Accumulated other comprehensive income         99,154
Total stockholders’ equity     60,210,734     37,817,086
Total liabilities and stockholders’ equity   $ 350,650,335   $ 154,413,372
             

Tucows  Inc. 
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars) 
                 
    Three months ended
December 31,
 
  Year ended
December 31,
 
    2017     2016     2017     2016  
     (unaudited)    (unaudited)
                 
Net revenues $ 90,620,894   $ 48,804,603   $ 329,420,741   $ 189,818,932  
                 
Cost of revenues:                
Cost of revenues   61,112,319     30,741,469     230,599,632     120,186,962  
Network expenses (*)     2,259,996       1,285,123       9,324,454       5,210,500  
Depreciation of property and equipment     1,013,981       343,400       3,142,398       1,319,819  
Amortization of intangible assets     499,032       11,532       1,833,628       48,017  
Total cost of revenues   64,885,328     32,381,524     244,900,112     126,765,298  
                 
Gross profit   25,735,566     16,423,079     84,520,629     63,053,634  
                 
Expenses:                
Sales and marketing (*)   7,372,270       5,580,133       29,422,984       20,754,752  
Technical operations and development (*)     1,855,335       1,049,701       7,257,720       4,494,819  
General and administrative (*)     3,467,852       3,907,041       13,593,901       11,404,793  
Depreciation of property and equipment     99,776       174,987       585,424       503,864  
Amortization of intangible assets     1,831,087       292,116       6,566,308       905,157  
Impairment of indefinite life intangible assets     109,751       14,928       111,251       42,673  
Loss (gain) on currency forward contracts     17,049       (1,984 )     (98,227 )     (98,977 )
Total expenses   14,753,120     11,016,922     57,439,361     38,007,081  
                 
Income from operations   10,982,446     5,406,157     27,081,268     25,046,553  
                 
Other income (expenses):                
Interest expense, net   (864,652 )   (147,970 )   (3,567,156 )   (449,838 )
Other income   48,825     128,422     560,656     516,209  
Total other income (expenses)   (815,827 )   (19,548 )   (3,006,500 )   66,371  
                 
Income before provision for income taxes   10,166,619     5,386,609     24,074,768     25,112,924  
                 
Provision for income taxes   (1,032,734 )   2,569,758     1,748,174     9,045,770  
Net income before redeemable non-controlling interest   11,199,353     2,816,851     22,326,594     16,067,154  
                 
Redeemable non-controlling interest     (75,302 )     (172,910 )     (386,995 )     (871,493 )
                 
Net income attributable to redeemable non-controlling interest     75,302       172,910       386,995       871,493  
Net income for the period   11,199,353     2,816,851     22,326,594     16,067,154  
                 
Other comprehensive income (loss), net of tax                
Unrealized income (loss) on hedging activities   (88,095 )   51,410     550,347     567,816  
Net amount reclassified to earnings   (233,940 )   93,954     (649,501 )   640,790  
Other comprehensive income (loss) net of tax of $(183,197) and $82,694 for the three months ended December 31, 2017 and  December 31, 2016, and $56,406 and $668,637 for the year ended December 31, 2017 and  December 31, 2016 (note 7)   (322,035 )   145,364     (99,154 )   1,208,606  
                 
Comprehensive income, net of tax for the period  $ 10,877,318    $ 2,962,215    $ 22,227,440    $ 17,275,760  
                 
Basic earnings per common share $ 1.06   $ 0.27   $ 2.12   $ 1.53  
                 
Shares used in computing basic earnings per common share   10,580,429     10,452,765     10,537,356     10,524,856  
                 
Diluted earnings per common share $ 1.04   $ 0.26   $ 2.07   $ 1.50  
                 
Shares used in computing diluted earnings per common share   10,802,817     10,642,853     10,793,622     10,713,595  
                 
                 
                 
(*) Stock-based compensation has been included in expenses as follows:                
Network expenses $ 50,378   $ 4,920   $ 109,988   $ 21,704  
Sales and marketing $ 254,156   $ 59,968   $ 571,682   $ 236,063  
Technical operations and development $ 145,062   $ 23,146   $ 360,415   $ 98,059  
General and administrative $ 172,989   $ 125,546   $ 414,487   $ 443,608  
                         

Tucows  Inc. 
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
                 
    Three months ended December 31, 
  Year ended December 31, 
    2017     2016     2017     2016  
Cash provided by:   (unaudited)    (unaudited) 
Operating activities:                
 Net income for the period  $ 11,199,353   $ 2,816,851    $ 22,326,594   $ 16,067,154  
Items not involving cash:                
Depreciation of property and equipment   1,113,757     518,387     3,727,822     1,823,683  
Loss on write off of property and equipment           16,951      
Amortization of debt discount and issuance costs   69,139     22,868     273,010     31,166  
Amortization of intangible assets   2,330,119     303,648     8,399,936     953,174  
Impairment of indefinite life intangible asset   109,751     14,928     111,251     42,673  
Deferred income taxes   (326,029 )   (435,844 )   (3,336,824 )   1,194,232  
Excess tax benefits on share-based compensation expense   (181,367 )   144,347     (2,796,171 )   859,111  
Amortization of deferred rent   165     (5,718 )   5,712     24,729  
Loss on disposal of domain names   266,132     4,110     290,793     29,691  
Other income   (128,820 )   (128,820 )   (515,280 )   (515,280 )
Loss (gain) on change in the fair value of forward contracts   54,431     (30,599 )   17,328     (322,732 )
Stock-based compensation   622,585     213,580     1,456,572     799,434  
Change in non-cash operating working capital:                
Accounts receivable   1,339,690     681,016     1,009,620     (3,754,234 )
Inventory   4,926     291,644     (1,733,457 )   (307,014 )
Prepaid expenses and deposits   527,303     (242,830 )   (1,642,016 )   (1,182,765 )
Prepaid domain name registry and ancillary services fees   3,460,147     529,988     4,030,485     (4,640,923 )
Income taxes recoverable   (2,241,488 )   1,623,008     (426,068 )   3,176,532  
Accounts payable   855,788     392,880     (3,825,526 )   390,887  
Accrued liabilities   (2,269,175 )   2,672,288     (1,274,773 )   1,243,219  
Customer deposits   (78,372 )   190,743     1,084,933     281,713  
Deferred revenue   (2,609,535 )   (517,636 )   4,933,478     6,255,027  
Accreditation fees payable   (37,898 )   8,116     (237,730 )   59,331  
Net cash provided by operating activities   14,080,602     9,066,955     31,896,640     22,508,808  
                 
Financing activities:                
Proceeds received on exercise of stock options   48,684     38,718     221,587     146,390  
Payment of tax obligations resulting from net exercise of stock options   (23,154 )   (44,515 )   (1,461,651 )   (363,285 )
Repurchase of common stock               (7,180,257 )
Proceeds received on loan payable           86,998,000     16,989,583  
Repayment of loan payable   (4,572,194 )   (258,276 )   (19,975,574 )   (9,758,276 )
Payment of loan payable costs       3,298     (620,217 )   (513,665 )
Net cash provided by (used in) financing activities   (4,546,664 )   (260,775 )   65,162,145     (679,510 )
                 
Investing activities:                
Additions to property and equipment   (3,473,767 )   (3,994,717 )   (12,934,872 )   (7,917,822 )
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   (558,066 )   (204,684 )   (2,942,364 )   (6,529,654 )
Net cash used in investing activities   (4,031,833 )   (4,199,401 )   (94,114,696 )   (14,447,476 )
                 
Increase (decrease) in cash and cash equivalents   5,502,105     4,606,779     2,944,089     7,381,822  
                 
Cash and cash equivalents, beginning of period     12,547,059       10,498,296       15,105,075       7,723,253  
Cash and cash equivalents, end of period $ 18,049,164   $ 15,105,075   $ 18,049,164   $ 15,105,075  
                 
Supplemental cash flow information:                
Interest paid $ 870,176    $ 126,760   $ 3,587,554    $ 420,298  
Income taxes paid, net $ 1,501,900    $ 1,258,996   $ 7,815,208    $ 3,766,664  
                 
Supplementary disclosure of non-cash investing and financing activities:                
Property and equipment acquired during the period not yet paid for $ 213,836   $ 446,821   $ 213,836   $ 446,821  
                         

Reconciliation of Net income to Adjusted EBITDA
(In Thousands of US Dollars)
(unaudited) 
                 
    Three months ended December 31,   Twelve months ended December 31,
    2017
(unaudited)
  2016
(unaudited)
  2017
(unaudited)
  2016
(unaudited)
                 
Net income for the period $   11,199   $   2,817   $   22,327   $    16,067  
Depreciation of property and equipment     1,114       518       3,728       1,824  
Amortization of intangible assets     2,330       304        8,400       953  
Impairment of intangible assets     110       15       111       43  
Interest expense, net     865       148        3,567       450  
Provision for income taxes     (1,033 )     2,570       1,748       9,046  
Stock-based compensation     623       214        1,457       799  
Unrealized loss (gain) on change in fair value of forward contracts     54       (31 )     17       (323 )
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities     (45 )     336       (805 )     829  
Acquisition and other costs1     58       442       806       442  
                 
Adjusted EBITDA $   15,275   $   7,333   $   41,356   $   30,130  
                 
                 
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.
 

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 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 and Hover are registered trademarks of Tucows Inc. or its subsidiaries.

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

Share this post