Tucows Reports Financial Results for First Quarter 2021

Toronto, Ontario, CANADA


TORONTO, May 06, 2021 (GLOBE NEWSWIRE) -- Tucows Inc. (NASDAQ:TCX, TSX:TC), a provider of Fiber Internet Services, Mobile Services, Domain Name Services and other Internet services, today reported its financial results for the first quarter ended March 31, 2021. All figures are in U.S. dollars.

COVID-19:   Tucows shareholders and prospective investors are encouraged to read Tucows’ public statement regarding COVID-19, which is available here: https://bit.ly/2LavpOc.

Note on the Financial Impact of Tucows’ Sale of Ting Mobile Customer Relationships and Transition to Mobile Services Enabler Platform:

As previously announced, effective August 1, 2020 most of Tucows’ mobile customers relationships were sold to DISH Networks (“DISH”) as part of Tucows’ transition of its mobile business to a Mobile Services Enabler (MSE) model from a Mobile Virtual Network Operator (MVNO) model, under which DISH became Tucows’ first MSE customer. Accordingly, the results of the Mobile Services segment for the first quarter of 2021 reflects operations under the new MSE model with prior periods being composed entirely of operations under Tucows’ previous MVNO model.

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 the Mobile Services segment for the first quarter of 2021 are lower than those for the first quarter of 2020. Tucows will recognize fees per subscriber for customers owned by DISH under the Ting brand as well as customers under DISH’s Boost brand that are added to Tucows’ MSE platform, as Mobile Platform Services revenue under the terms of the MSE Agreement signed with DISH. For more information, see Tucows’ Financial Statements and Management Discussion and Analysis for the first quarter of 2021.

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

 3 Months ended March 31
2021
(Unaudited)
2020
(Unaudited)
% Change
Net revenue70,87583,985(15.6%)
Gross Profit17,45325,150(30.6%)
Gain on Sale of Ting Customer Assets15,395-n/a
Net income2,1492,834(24.2%)
Basic Net earnings per common share0.200.27(25.9%)
Adjusted EBITDA112,72412,6810.3%
Net cash provided by operating activities14,08614,0730.1%
  1. This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.

Summary of Revenues, Gross Profit and Adjusted EBITDA
(In Thousands of US Dollars)

 RevenueGross ProfitAdj. EBITDA2
 3 Months ended 
March 31
3 Months ended 
March 31
3 Months ended 
March 31
 2021
(Unaudited)
2020
(Unaudited)
2021
(Unaudited)
2020
(Unaudited)
2021
(Unaudited)
2020
(Unaudited)
Fiber Internet Services:  
Fiber Internet Services5,3714,3082,736 2,592 (2,593)(1,062)
       
Mobile Services:
Retail Mobile Services2,01420,148960 10,291   
Mobile Platform Services349-291 -   
Other Professional Services1,916-250 -   
Total Mobile Services4,27920,1481,501 10,291 4,478 4,989 
       
Domain Services:  
Wholesale      
Domain Services46,99145,96411,216 9,495   
Value Added Services5,0804,3064,482 3,549   
Total Wholesale52,07150,27015,698 13,044   
       
Retail9,1549,2594,753 4,870   
Total Domain Services61,22559,52920,451 17,914 13,820 11,547 
Network Expenses:  
Network, other costsn/an/a(3,238)(2,416)  
Network, depreciation and amortization costsn/an/a(3,937)(3,231)  
Network, impairmentn/an/a(60)-   
Total Network expensesn/an/a(7,235)(5,647)  
       
Total70,87583,98517,453 25,150   

“The first quarter was a very solid start to 2021 with revenue and gross margin from our Domains and Ting Internet businesses combined, increasing 4% and 13% year over year, respectively.” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “In our Domains Services business, as growth in new registration volumes continued to decelerate toward normalized levels as expected post the pandemic surge, we are clearly benefiting from our focus on profitability with Adjusted EBITDA up 20% year-over-year. The new iteration of the Mobile Services business continues to move forward on plan with our legacy customer base performing as expected with DISH. And it was one of our best quarters ever of progress in the Ting Internet business as we set new records across all of our key metrics, most notably, by far our largest quarterly capital expenditures as we accelerate investment in 2021, as well as our highest ever quarter for additions in serviceable addresses.”

Financial Results
  
Net revenue for the first quarter of 2021 was $70.9 million compared with $84.0 million for the first quarter of 2020. The majority of the decrease was the result of the absence of Ting Mobile MVNO revenue in the first quarter of 2021 following the Company’s sale of its Ting Mobile customer relationships to DISH and the related earn out being recognized as Other Income. Excluding the Mobile Services business, net revenue for the combined Domains and Ting Internet businesses for the first quarter of 2021 increased 4% from the first quarter of 2020.

Gross profit for the first quarter of 2021 was $17.5 million compared with $25.2 million for the first quarter of 2020. The decrease in gross profit is attributable to the same factors as the decrease in revenue. Excluding the Mobile Services business, gross margin for the combined Domains and Ting Internet businesses for the first quarter of 2021 increased 13% from the first quarter of 2020.

Net income for the first quarter of 2021 was $2.1 million, or $0.20 per share, a decrease of 24% from $2.8 million, or $0.27 per share, for the first quarter of 2020 due to higher Fiber network related depreciation and slighter higher effective annual tax rate.

Adjusted EBITDA1 for the first quarter of 2021 remained flat at $12.7 million, an increase of less than 1% compared to the first quarter of 2020.

Cash and cash equivalents at the end of the first quarter of 2021 were $8.3 million, unchanged from that at the end of the fourth quarter of 2020 and down from $12.4 million at the end of the first quarter of 2020.

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 (net), accretion of contingent consideration, stock-based compensation, asset impairment, gains and losses from unrealized foreign currency transactions and costs that are one-time in nature and not indicative of on-going performance (profitability), 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 adjusted EBITDA to income before provision for income taxes (dollars in thousands):

  3 months ended March 31
  2021 (Unaudited)2020 (Unaudited)
Adjusted EBITDA12,72412,681
Depreciation of property and equipment3,7592,990
Impairment of property and equipment60-
Amortization of intangible assets2,6193,301
Interest expense, net9361,150
Accretion of contingent consideration9687
Stock-based compensation1,022801
Unrealized loss (gain) on change in fair value of forward contracts166348
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities67(42)
Acquisition and transition costs*767111
   
Income before provision for income taxes3,2323,935
*Acquisition and other costs represent transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses, primarily related to our acquisition of Ascio in March 2019 and Cedar in January 2020 and disposition of certain Ting Mobile assets in August 2020. 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 its quarterly financial results news release at 5:05 pm ET on Thursday, May 6, management’s pre-recorded audio commentary (and transcript) discussing the quarter and outlook for the Company, will be posted to the Tucows website at http://www.tucows.com/investors/financials. In lieu of a live question and answer period, for the subsequent five days, until Tuesday, May 11, shareholders, analysts and prospective investors can submit questions to Tucows’ management at ir@tucows.com. Management will post responses to questions of general interest (audio recording and transcript) to the Company’s website at http://www.tucows.com/investors/financials/ on Tuesday, May 18, at approximately 4 pm 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 Fiber Internet Services, Mobile Services, Domain Name Services and other Internet services. Ting Internet (https://ting.com/internet) delivers fixed fiber Internet access with outstanding customer support. Tucows’ mobile services enabler (MSE) platform provides network access, provisioning and billing services for mobile virtual network operators (MVNOs). OpenSRS (https://opensrs.com), Enom (https://www.enom.com) and Ascio (https://ascio.com) combined manage approximately 26 million domain names and millions of value-added services through a global reseller network of over 36,000 web hosts and ISPs. Hover (https://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 (https://tucows.com).

Tucows Inc. 
Consolidated Balance Sheets 
(Dollar amounts in thousands of U.S. dollars) 
     
 March 31 December 31, 
 2021 2020 
     
 (unaudited) (unaudited) 
     
Assets    
     
Current assets:    
Cash and cash equivalents$8,310 $8,311 
Accounts receivable 15,868  15,540 
Inventory 2,317  1,875 
Prepaid expenses and deposits 14,579  16,845 
Derivative instrument asset, current portion 2,893  3,860 
Deferred costs of fulfillment, current portion 96,861  93,467 
Income taxes recoverable 1,316  1,302 
Total current assets 142,144  141,200 
     
Derivative instrument asset, long-term portion 65  - 
Deferred costs of fulfillment, long-term portion 18,316  17,599 
Property and equipment 129,846  117,530 
Right of use operating lease asset 11,893  11,238 
Contract costs 369  362 
Deferred tax asset 188  226 
Intangible assets 44,978  47,444 
Goodwill 116,304  116,304 
Total assets$464,103 $451,903 
     
     
Liabilities and Stockholders' Equity    
     
Current liabilities:    
Accounts payable$9,969 $6,329 
Accrued liabilities 11,028  10,235 
Customer deposits 15,527  15,402 
Derivative instrument liability, current portion 83  99 
Operating lease liability, current portion 1,982  1,761 
Deferred revenue, current portion 132,427  127,336 
Accreditation fees payable, current portion 1,023  940 
Income taxes payable 14  863 
Total current liabilities 172,053  162,965 
     
Derivative instrument liability, long-term portion -  114 
Deferred revenue, long-term portion 25,167  24,909 
Accreditation fees payable, long-term portion 189  195 
Operating lease liability, long-term portion 9,668  9,179 
Loan payable, long-term portion 121,802  121,733 
Other long-term liability 3,512  3,416 
Deferred tax liability 24,298  24,694 
     
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; 10,624,415 shares issued and outstanding as of March 31, 2021 and 10,612,414 shares issued and outstanding as of December 31, 2020 21,511  20,798 
Additional paid-in capital 1,778  1,458 
Retained earnings 82,255  80,106 
Accumulated other comprehensive income 1,870  2,336 
Total stockholders' equity 107,414  104,698 
Total liabilities and stockholders' equity$464,103 $451,903 



Tucows Inc.
Consolidated Statements of Operations and Comprehensive Income
(Dollar amounts in thousands of U.S. dollars)
     
  Three months ended March 31,
  2021 2020
  (unaudited) (unaudited)
     
Net revenues$70,875 $83,985 
     
Cost of revenues:    
Cost of revenues 46,187  53,188 
Network expenses (*) 3,238  2,416 
Depreciation of property and equipment 3,638  2,877 
Amortization of intangible assets 299  354 
Impairment of property and equipment 60  - 
Total cost of revenues 53,422  58,835 
     
Gross profit 17,453  25,150 
     
Expenses:    
Sales and marketing (*) 8,311  8,985 
Technical operations and development (*) 3,132  2,751 
General and administrative (*) 4,953  4,741 
Depreciation of property and equipment 121  113 
Amortization of intangible assets 2,320  2,947 
Loss (gain) on currency forward contracts (253) 441 
Total expenses 18,584  19,978 
     
Income from operations (1,131) 5,172 
     
Other income (expenses):    
Interest expense, net (936) (1,150)
Gain on sale of Ting Customer Assets, net 5,395  - 
Other expense, net (96) (87)
Total other income (expenses) 4,363  (1,237)
     
Income before provision for income taxes 3,232  3,935 
     
Provision for income taxes 1,083  1,101 
Net income for the period 2,149  2,834 
     
Other comprehensive income, net of tax    
Unrealized income (loss) on hedging activities 368  (1,234)
Net amount reclassified to earnings (834) 43 
Other comprehensive income (loss) net of tax expense (recovery) of ($140) and ($366) for the three months ended March 31, 2021 and March 31, 2020 respectively (466) (1,191)
     
Comprehensive income, net of tax for the period$1,683 $1,643 
     
Basic earnings per common share$0.20 $0.27 
     
Shares used in computing basic earnings per common share 10,617,807  10,612,230 
     
Diluted earnings per common share$0.20 $0.26 
     
Shares used in computing diluted earnings per common share 10,796,762  10,713,678 
     
     
     
(*) Stock-based compensation has been included in expenses as follows:    
Network expenses$125 $87 
Sales and marketing$506 $370 
Technical operations and development$167 $167 
General and administrative$224 $177 



     
Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in thousands of U.S. dollars)
     
  Three months ended March 31,
  2021 2020
  (unaudited) (unaudited)
     
Cash provided by:    
Operating activities:    
Net income for the period$2,149 $2,834 
Items not involving cash:    
Depreciation of property and equipment 3,759  2,990 
Loss on write off of property and equipment 60  - 
Amortization of debt discount and issuance costs 67  67 
Amortization of intangible assets 2,619  3,301 
Net amortization contract costs (7) 29 
Accretion of contingent consideration 96  87 
Deferred income taxes (recovery) (220) (190)
Excess tax benefits on share-based compensation expense (172) (180)
Net Right of use operating assets/Operating lease liability 55  (179)
Loss on disposal of domain names 1  13 
Loss (gain) on change in the fair value of forward contracts 166  348 
Stock-based compensation 1,022  801 
Change in non-cash operating working capital:    
Accounts receivable (328) 2,151 
Inventory (442) 904 
Prepaid expenses and deposits 2,266  25 
Deferred costs of fulfillment (4,111) (2,853)
Income taxes recoverable (689) 500 
Accounts payable 1,451  1,771 
Accrued liabilities 793  (1,831)
Customer deposits 125  58 
Deferred revenue 5,349  3,342 
Accreditation fees payable 77  85 
Net cash provided by operating activities 14,086  14,073 
     
Financing activities:    
Proceeds received on exercise of stock options 229  17 
Payment of tax obligations resulting from net exercise of stock options (218) (182)
Repurchase of common stock -  (3,117)
Payment of loan payable costs -  (25)
Net cash provided by (used in) financing activities 11  (3,307)
     
Investing activities:    
Additions to property and equipment (13,944) (9,943)
Acquisition of Cedar Networks, net of cash of $66 -  (8,770)
Acquisition of intangible assets (154) - 
Net cash used in investing activities (14,098) (18,713)
     
(Decrease) increase in cash and cash equivalents (1) (7,947)
     
Cash and cash equivalents, beginning of period 8,311  20,393 
Cash and cash equivalents, end of period$8,310 $12,446 
     
Supplemental cash flow information:    
Interest paid$949 $1,154 
Income taxes paid, net$2,381 $956 
     
Supplementary disclosure of non-cash investing and financing activities:    
Property and equipment acquired during the period not yet paid for$3,320 $1,102 
Fair value of shares issued for acquisition of Cedar Holdings Group$- $2,000 
Fair value of contingent consideration for acquisition of Cedar Holdings Group$- $3,065 
     


     
     
     
     
Reconciliation of Income before Provision for Income Taxes to Adjusted EBITDA  
(In Thousands of U.S. Dollars)  Three months ended March 31,
(unaudited)  2021 (unaudited) 2020 (unaudited)
      
Adjusted EBITDA$12,724$12,681 
Depreciation of property and equipment 3,759 2,990 
Impairment of property and equipment 60 - 
Amortization of intangible assets 2,619 3,301 
Interest expense, net 936 1,150 
Accretion of contingent consideration 96 87 
Stock-based compensation 1,022 801 
Unrealized loss (gain) on change in fair value of forward contracts 166 348 
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities 67 (42)
Acquisition and other costs1 767 111 
     
Income before provision for income taxes$3,232$3,935 
     
1Acquisition and other costs represents transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses. Expenses include severance and 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