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TORONTO, Feb. 07, 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 fourth quarter ended December 31, 2016. 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
2016 (Unaudited)2015 (Unaudited)% Change2016 (Unaudited)2015
% Change
Net revenue48,80544,7079%189,819171,68711%
Net income2,8173,095(9%)16,06711,37441%
Basic Net earnings per common share0.270.29(7%)1.531.0447%
Adjusted EBITDA17,3335,50833%30,13020,94844%
Net cash provided by operating activities8,9231,389542%21,65013,34662%
         
  1. This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table. Tucows has revised its definition of Adjusted EBITDA as detailed in the description below and the table reconciling Adjusted EBITDA to GAAP net income.
Summary of Revenues and Gross Margin
(In Thousands of US Dollars)
   
 RevenueGross Margin
 3 Months ended
December 31
3 Months ended
December 31
 2016
(Unaudited)
2015
(Unaudited)
2016
(Unaudited)
2015
(Unaudited)
Network Access Services:
Mobile Services17,83916,0548,951 7,342 
Other Services919939254 488 
Total Network Access Services18,75816,9939,205 7,830 
     
Domain Services:
Wholesale    
Domain Services23,13021,3524,398 3,492 
Value Added Services2,3362,3041,819 1,805 
Total Wholesale25,46623,6566,217 5,297 
     
Retail3,8823,3592,086 1,849 
Portfolio698699555 517 
Total Domain Services30,04627,7148,858 7,664 
     
Network Expenses:
Network, other costs(1,285)(1,327)
Network, depreciation and amortization costs(355)(353)
Total Network expenses(1,640)(1,680)
     
Total revenue/gross margin48,80544,70716,423 13,814 
       

“A strong fourth quarter contributed to a record financial performance for 2016, driven by continued top line and gross margin growth in both our Ting Mobile and Domain Services businesses as we continue to benefit from the significant operating leverage in our business,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Revenue for fourth quarter grew 9% year-over year to just under $49 million, and for the year grew 11% to just under $190 million. Earnings per share for the quarter decreased 7% year-over-year to $0.27 while growing 47% for the full year to $1.53.”

“As importantly, each of our businesses contributed just what we would have hoped to the overall business strategy,” added Mr. Noss. “Domain Services achieved greater scale and efficiency with the acquisition and successful integration of Melbourne IT’s international wholesale domain reseller channel. With the very recent acquisition of Enom and its expected operating synergies to come over the next 24 months, we anticipate further efficiencies in the future. Ting Mobile delivered outstanding growth, finishing the year with a run rate of over $35 million in annual gross margin. And Ting Internet took significant strides toward future contribution as we added new towns, expanded our networks, drove demand and optimized our operations and processes.”

Mr. Noss added, “We begin 2017 in a tremendous position to continue to grow our bottom line and invest in our priorities.”

Financial Results
  
Net revenue for the fourth quarter of 2016 increased 9% to 48.8 million from $44.7 million for the fourth quarter of 2015.

Net income for the fourth quarter of 2016 decreased to $2.8 million, or $0.27 per share, from $3.1 million, or $0.29 per share, for the fourth quarter of 2015. Net income for the fourth quarter of 2016 was negatively impacted during the quarter by one-time items totaling $1.0 million related to the eNom acquisition and the Ting Mobile business. Adjusted EBITDA1 for the fourth quarter of 2016 increased to $7.3 million from $5.5 million for the fourth quarter of 2015.

Cash and cash equivalents at the end of the fourth quarter of 2016 were $15.1 million compared with $10.5 million at the end of the third quarter of 2016 and $7.7 million at the end of the fourth quarter of 2015. The increase relative to the third quarter of 2016 was primarily the result of cash provided by operating activities of $8.9 million, which was partially offset by a further investment of $4.0 million in property and equipment, primarily for the continued build out of the Ting Internet footprint and scheduled loan repayments of $0.3 million.

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 integration 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.

Prior year Adjusted EBITDA amounts presented herein 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.

During 2016, the Company identified an immaterial error that affects the classification of certain marketing program costs. Prior to the third quarter of fiscal 2016, the Company recorded the cost for certain marketing credits as Sales and marketing expense which should have been recorded as a reduction in Net revenue. The discussion presented here correctly reflect these marketing credits as a reduction in Net Revenues for all current and comparative periods. This resulted in a decrease in Net Revenues, and a corresponding decrease in Sales and marketing expenses of $0.3 million and $1.3 million for the three months and year ended December 31, 2015.

Conference Call
Tucows management will host a conference call today, Tuesday, February 7, 2017 at 5:00 p.m. (ET) to discuss the Company’s fourth quarter 2016 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 58593654 followed by the pound key. The telephone replay will be available until Tuesday, February 14, 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 29 million domain names and millions of value-added services through a global reseller network of over 40,000 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, 
   2016  2015  
  (unaudited) (unaudited) 
      
Assets     
      
Current assets:     
Cash and cash equivalents $  15,105,075 $  7,723,253  
Accounts receivable    10,925,622  7,171,388  
Inventory    1,210,789  903,775  
Prepaid expenses and deposits    6,250,555  5,067,790  
Derivative instrument asset, current portion    172,888  -  
Prepaid domain name registry and ancillary services fees, current portion    49,396,737  44,708,041  
Income taxes recoverable    220,451  2,292,915  
Total current assets  83,282,117  67,867,162  
      
Prepaid domain name registry and ancillary services fees, long-term portion  10,993,156  11,040,929  
Property and equipment  13,450,438  7,126,676  
Deferred tax asset    5,708,725  7,621,092  
Intangible assets  19,973,793  14,469,677  
Goodwill  21,005,143  21,005,143  
Total assets $154,413,372 $129,130,679  
      
      
Liabilities and Stockholders' Equity     
      
Current liabilities:     
Accounts payable $  4,786,645 $  4,166,135  
Accrued liabilities    7,098,905  5,855,686  
Customer deposits    5,418,622  5,136,909  
Derivative instrument liability, current portion  -  2,027,086  
Deferred rent, current portion  20,854  19,463  
Loan payable, current portion  2,233,110  3,500,000  
Deferred revenue, current portion  62,795,079  56,646,390  
Accreditation fees payable, current portion  528,027  465,300  
Income taxes payable    1,548,121  444,053  
Total current liabilities  84,429,363  78,261,022  
      
Deferred revenue, long-term portion    15,053,977  14,947,639  
Accreditation fees payable, long-term portion    115,084  118,480  
Deferred rent, long-term portion    124,202  100,864  
Loan payable, long-term portion    8,015,698  -  
Other liabilities    944,680  1,459,960  
Deferred tax liability    4,827,192  4,876,691  
      
Redeemable non-controlling interest  3,086,090  3,036,598  
      
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;10,461,574 shares issued and outstanding as of December 31, 2016 and 10,685,599 shares issued and outstanding as of December 31, 2015  14,460,500  14,530,633  
Additional paid-in capital  2,857,921  8,526,395  
Retained earnings    20,399,511  4,381,849  
Accumulated other comprehensive income (loss)  99,154  (1,109,452) 
Total stockholders' equity  37,817,086  26,329,425  
Total liabilities and stockholders' equity $  154,413,372 $  129,130,679  
      

 

Tucows  Inc.   
Consolidated Statements of Operations   
(Dollar amounts in U.S. dollars)   
         
   Three months ended December 31, 
  Year ended December 31, 
  2016  2015  2016  2015 
   (unaudited)   (unaudited) 
         
Net revenues$  48,804,603 $  44,706,681 $  189,818,932 $  171,686,779 
         
Cost of revenues:        
Cost of revenues 30,741,469  29,213,212  120,186,962   112,980,685 
Network expenses (*)   1,285,123    1,326,564    5,210,500    5,464,777 
Depreciation of property and equipment   343,400    341,252    1,319,819    1,144,988 
Amortization of intangible assets   11,532    11,532    48,017    38,520 
Total cost of revenues 32,381,524  30,892,560  126,765,298  119,628,970 
         
Gross profit 16,423,079  13,814,121  63,053,634  52,057,809 
         
Expenses:        
Sales and marketing (*)   5,580,133    4,850,984    20,754,752    17,394,376 
Technical operations and development (*)   1,049,701    1,097,793    4,494,819    4,502,845 
General and administrative (*)    3,907,041    2,835,540    11,404,793    10,661,949 
Depreciation of property and equipment   174,987    74,233    503,864    259,307 
Amortization of intangible assets 292,116    56,997  905,157    224,206 
Impairment of indefinite life intangible assets 14,928    137,268  42,673    206,116 
Loss (gain) on currency forward contracts (1,984)   110,912  (98,977)   792,900 
Total expenses 11,016,922  9,163,727  38,007,081  34,041,699 
         
Income from operations 5,406,157  4,650,394  25,046,553  18,016,110 
         
Other income (expenses):        
Interest expense, net   (147,970) 2,112    (449,838) (159,025)
Other income   128,422  85,872    516,209  85,872 
Total other income (expenses) (19,548) 87,984  66,371  (73,153)
         
Income before provision for income taxes 5,386,609  4,738,378  25,112,924  17,942,957 
         
Provision for income taxes   2,569,758  1,643,038    9,045,770  6,569,227 
Net income before redeemable non-controlling interest 2,816,851  3,095,340  16,067,154  11,373,730 
         
Redeemable non-controlling interest   (172,910)   (121,759)   (871,493)   (284,509)
         
Net (earnings) loss attributable to redeemable non-controlling interest   172,910    121,759    871,493    284,509 
         
Net income for the period 2,816,851  3,095,340  16,067,154  11,373,730 
         
Other comprehensive income (loss), net of tax        
Unrealized income (loss) on hedging activities 51,410  (308,217) 567,816  (2,031,465)
Net amount reclassified to earnings 93,954  392,095  640,790  1,544,454 
Other comprehensive income (loss) net of tax of $82,694 and $46,284 for the three months ended December 31, 2016 and December 31, 2015 and  $668,637 and $287,996 for the year ended December 31, 2016 and December 31, 2015 145,364  83,878  1,208,606  (487,011)
         
Comprehensive income, net of tax for the period $ 2,962,215  $ 3,179,218  $ 17,275,760  $ 10,886,719 
         
Basic earnings per common share$0.27 $0.29 $1.53 $1.04 
         
Shares used in computing basic earnings per common share 10,452,765  10,704,251  10,524,856  10,968,500 
         
Diluted earnings per common share$0.26 $0.28 $1.50 $1.00 
         
Shares used in computing diluted earnings per common share 10,642,853  11,034,147  10,713,595  11,360,084 
         
         
(*) Stock-based compensation has been included in expenses as follows:        
Network expenses$4,920 $6,651 $21,704 $28,915 
Sales and marketing$59,968 $43,627 $236,063 $188,035 
Technical operations and development$23,146 $26,593 $98,059 $111,239 
General and administrative$125,546 $70,926 $443,608 $197,836 
         

 

Tucows  Inc.   
Consolidated Statements of Cash Flows   
(Dollar amounts in U.S. dollars)   
         
   Three months ended December 31, 
  Year ended December 31, 
  2016  2015  2016  2015 
Cash provided by:  (unaudited)   (unaudited) 
Operating activities:        
Net income for the period  $   2,816,851  $ 3,095,335  $   16,067,154  $ 11,373,730 
Items not involving cash:        
Depreciation of property and equipment 518,387  415,485  1,823,683  1,404,296 
Amortization of debt discount and issuance costs 22,868  -  31,166  - 
Amortization of intangible assets 303,648  68,529  953,174  262,726 
Impairment of indefinite life intangible asset 14,928  137,268  42,673  206,116 
Deferred income taxes (435,844) 1,154,115  1,194,232  134,861 
Amortization of deferred rent (5,718) 9,532  24,729  27,449 
Disposal of domain names 4,110  3,515  29,691  24,066 
Other income (128,820) (85,872) (515,280) (85,872)
Loss (gain) on change in the fair value of forward contracts (30,599) (24,118) (322,732) 136,276 
Stock-based compensation 213,580  147,797  799,434  526,025 
Change in non-cash operating working capital:        
Accounts receivable   681,016  774,701    (3,754,234) (220,188)
Inventory   291,644  (161,315)   (307,014) (442,806)
Prepaid expenses and deposits   (242,830) (389,949)   (1,182,765) (1,282,054)
Prepaid domain name registry and ancillary services fees   529,988  2,699,524    (4,640,923) 630,653 
Income taxes recoverable   1,623,008  (4,256,771)   3,176,532  (2,321,345)
Accounts payable   392,880  47,353    390,887  249,931 
Accrued liabilities   2,672,288  173,903    1,243,219  1,691,356 
Customer deposits   190,743  421,959    281,713  675,182 
Deferred revenue   (517,636) (2,819,673)   6,255,027  366,273 
Accreditation fees payable   8,116  (22,089)   59,331  (10,664)
Net cash provided by operating activities 8,922,608  1,389,229  21,649,697  13,346,011 
         
Financing activities:        
Proceeds received on exercise of stock options 38,718  65,767  146,390  803,136 
Payment of tax obligations resulting from net exercise of stock options (44,515) (1,306,981) (363,285) (1,306,981)
Excess tax benefits from share-based compensation expense 144,347  2,030,224  859,111  3,431,017 
Repurchase of common stock -  (5,437,110) (7,180,257) (23,616,286)
Proceeds received on loan payable -  -  16,989,583  3,500,000 
Repayment of  loan payable (258,276) -  (9,758,276) - 
Payment of loan payable costs 3,298  -  (513,665) - 
Net cash provided by (used in) financing activities (116,428) (4,648,100) 179,601  (17,189,114)
         
Investing activities:        
Additions to property and equipment (3,994,717) (916,236) (7,917,822) (2,967,360)
Proceeds on  waiver of rights to .online registry -  -  -  6,619,831 
Remaining payment for the acquisition of Ting Virginia, LLC., net of cash of $21,423 -  -  -  (357,492)
Acquisition of intangible assets (204,684) -  (6,529,654) - 
Net cash provided by (used in) investing activities (4,199,401) (916,236) (14,447,476) 3,294,979 
         
Increase (decrease) in cash and cash equivalents 4,606,779  (4,175,107) 7,381,822  (548,124)
         
Cash and cash equivalents, beginning of period   10,498,296    11,898,360    7,723,253    8,271,377 
Cash and cash equivalents, end of period$15,105,075 $7,723,253 $15,105,075 $7,723,253 
         
Supplemental cash flow information:        
Interest paid$126,760  $ 46,126  $ 420,298  $ 173,197 
Income taxes paid, net$1,258,966  $ 592,798  $ 3,766,664  $ 3,132,105 
         
Supplementary disclosure of non-cash investing and financing activities:        
Property and equipment acquired during the period not yet paid for$446,821  $ 217,198  $ 446,821  $ 217,198 
         

 

Tucows  Inc.     
Reconciliation of Net income to Adjusted EBITDA    
(In Thousands of US Dollars)     
          
  Three months ended December 31, 
  Year ended December 31,  
  2016  2015  2016  2015 
   (unaudited)   (unaudited)  
          
Net income for the period $  2,817 $  3,095 $  16,067 $  11,374 
Depreciation of property and equipment    518    415    1,824    1,404 
Amortization of intangible assets    304    69    953    263 
Impairment of intangible assets   15    137    43    206 
Interest expense, net   148    (2)   450    159 
Provision for income taxes    2,570    1,643    9,046    6,569 
Stock-based compensation   214    148    799    526 
Unrealized loss (gain) on change in fair value of forward contracts   (31)   (24)   (323)   136 
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities   336    27    829    311 
Acquisition and integration costs 1   442    -     442    -  
          
Adjusted EBITDA$  7,333 $  5,508 $  30,130 $  20,948 
          
1Acquisition and integration costs represent costs incurred in connection with the acquisition of eNom, Incorporated in January 2017.  These costs are primarily comprised of professional fees for legal, accounting and other services. 
          

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® is a registered trademark of Tucows Inc. or its subsidiaries. All other trademarks and service marks are the properties of their respective owners.

CONTACT: Contact:
Lawrence Chamberlain
NATIONAL Equicom
(416) 848-1457
lchamberlain@national.ca

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