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TORONTO, Aug. 08, 2016 (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 second quarter ended June 30, 2016. All figures are in U.S. dollars.

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

   
 3 Months Ended June 306 Months Ended June 30
2016
(Unaudited)
2015
(Unaudited)
% Change2016
(Unaudited)
2015
(Unaudited)
% Change
Net revenue47,46642,889 11%93,07783,357 12%
Net income4,0712,285 78%8,5095,119 66%
Net earnings per common share0.390.21 86%0.800.46 74%
Adjusted EBITDA17,1124,349 64%13,9259,641 44%
Net cash provided by operating activities2,1732,236 -3%7,7275,173 49%
           
  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 June 303 Months ended June 30
 2016
(Unaudited)
2015
(Unaudited)
2016
(Unaudited)
2015
(Unaudited)
Network Access Services:
Mobile Services18,02614,352 8,646  6,356 
Other Services9721,066 443  564 
Total Network Access Services18,99915,418 9,089  6,919 
     
Domain Services:
Wholesale    
Domain Services21,69921,287 4,053  3,542 
Value Added Services2,3102,356 1,858  1,854 
Total Wholesale24,00823,643 5,911  5,396 
     
Retail3,5563,009 1,916  1,687 
Portfolio903819 700  636 
Total Domain Services28,46827,471 8,528  7,719 
     
Network Expenses:
Network, other costs (1,405) (1,495)
Network, depreciation and amortization costs (362) (291)
Total Network expenses (1,767) (1,786)
     
Total revenue/gross margin47,46642,889 15,850  12,852 
         

“Tucows delivered another solid quarter of financial performance, driven by growth in both Network Access and Domain Services as we continue to benefit from the significant operating leverage in our business,” said Elliot Noss, President and Chief Executive Officer.  “Overall revenue grew 11% year-over-year, while net income was 78% higher at $4.1 million, or $0.39 per share and adjusted EBITDA1 was up 64% to $7.1 million.”

“Ting Mobile powered another great financial quarter and the acquisition and successful integration of Melbourne IT’s international wholesale domain reseller channel punctuated another quarter of steady contribution from our Domain Services business. While these core services continue to drive earnings, in our Ting Internet service we are steadily gaining experience, serviceable addresses, brand awareness and glowing reviews in Charlottesville, Virginia and Westminster, Maryland and we are getting ready to begin construction in Holly Springs, North Carolina.”

“All in, it was a good quarter for both the present and the future.”

Net revenue for the second quarter of 2016 increased 11% to $47.5 million from $42.9 million for the second quarter of 2015.

Net income for the second quarter of 2016 increased to $4.1 million, or $0.39 per share, compared with $2.3 million, or $0.21 per share, for the second quarter of 2015.  Adjusted EBITDA1 for the second quarter of 2016 increased to $7.1 million from $4.3 million for the second quarter of 2015.

Cash and cash equivalents at the end of the second quarter of 2016 was $5.9 million compared with $10.0 million at the end of the first quarter of 2016 and $15.3 million at the end of the second quarter of 2015. The decrease relative to the first quarter of 2016 was primarily the result of the purchase of 209,698 shares of common stock for $5.0 million under the Company’s open market share buyback program, further investment of $1.0 million in property and equipment, primarily for the continued build out of the Ting Internet footprint, and repayment of $0.2 million of its bank loan.  These decreases were offset by cash provided by operating activities of $2.2 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 current 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. 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 Company’s current adjusted EBITDA definition is the result of two revisions:

  • In response to the clarification guidance provided by the SEC Compliance & Disclosure Interpretations regarding Non-GAAP Measures, updated on May 17, 2016, the Company revised its definition of adjusted EBITDA to eliminate the adjustment for the effect of net deferred revenue.  Prior to this quarter of 2016, the Company’s adjusted EBITDA definition included an adjustment which removed the effect of net deferred revenue, which comprised the change in deferred revenue, net of prepaid domain name registry and other Internet services fees.
     
  • As previously disclosed, in April 2016, as part of the Company’s assessment of its compensation program for 2016, the Company revised the definition of adjusted EBITDA to eliminate the adjustment for the effect of realized gains/losses from all foreign currency contracts, both hedged and unhedged as the Company believes it is able to manage realized gains/losses from all foreign currency contracts with proper planning and budgeting.  The Company used this version of adjusted EBITDA definition in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016.

The current adjusted EBITDA definition will be used to assess Company performance for 2016 and future periods.

In accordance with the clarification guidance provided by the SEC Compliance & Disclosure Interpretations, Non-GAAP Measures updated on May 17, 2016, prior period Adjusted EBITDA amounts presented herein have been recast to reflect the above described revisions.

Conference Call
Tucows management will host a conference call today, Monday, August 8, 2016 at 8:00 a.m. (ET) to discuss the Company’s second 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 50279294 followed by the pound key. The telephone replay will be available until Monday, August 15, 2016 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) manages nearly 15 million domain names and millions of value-added services through a global reseller network of over 13,000 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).

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.


 
Tucows  Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
     
  June 30, December 31,
  2016 2015
  (unaudited) (unaudited)
     
Assets    
     
Current assets:    
Cash and cash equivalents $5,879,482  $7,723,253 
Accounts receivable  9,982,919   7,171,388 
Inventory  1,284,692   903,775 
Prepaid expenses and deposits  6,427,664   5,067,790 
Derivative instrument asset, current portion  73,617   - 
         
Prepaid domain name registry and ancillary services fees, current portion  48,350,997   44,708,041 
Income taxes recoverable  1,326,355   2,292,915 
Total current assets  73,325,726   67,867,162 
     
Prepaid domain name registry and ancillary services fees, long-term portion  11,296,936   11,040,929 
Property and equipment  7,939,984   7,126,676 
Deferred tax asset  6,339,848   7,621,092 
Other assets  133,500   - 
Intangible assets  20,317,568   14,469,677 
Goodwill  21,005,143   21,005,143 
Total assets $140,358,705  $129,130,679 
     
     
Liabilities and Stockholders' Equity    
     
Current liabilities:    
Accounts payable $3,312,273  $4,166,135 
Accrued liabilities  5,008,112   5,855,686 
Customer deposits  6,171,458   5,136,909 
Derivative instrument liability  294,170   2,027,086 
Deferred rent, current portion  20,854   19,463 
Loan payable, current portion  9,062,500   3,500,000 
Deferred revenue, current portion  61,337,998   56,646,390 
Accreditation fees payable, current portion  505,175   465,300 
Income taxes payable  667,773   444,053 
Total current liabilities  86,380,313   78,261,022 
     
Deferred revenue, long-term portion  15,362,403   14,947,639 
Accreditation fees payable, long-term portion  115,761   118,480 
Deferred rent, long-term portion  116,137   100,864 
Other liabilities  1,202,320   1,459,960 
Deferred tax liability  4,843,153   4,876,691 
     
Redeemable non-controlling interest  3,061,244   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;10,422,453 shares issued and outstanding as of June 30, 2016 and 10,685,599 shares issued and outstanding as of December 31, 2015  14,295,907   14,530,633 
Additional paid-in capital  2,234,541   8,526,395 
Retained earnings  12,866,227   4,381,849 
Accumulated other comprehensive income (loss)  (119,301)  (1,109,452)
Total stockholders' equity  29,277,374   26,329,425 
Total liabilities and stockholders' equity $140,358,705  $129,130,679 
     

 

Tucows  Inc.  
Consolidated Statements of Operations  
(Dollar amounts in U.S. dollars)  
         
  Three months ended
June 30,

  Six months ended
June 30,
 
  2016 2015 2016 2015
                 
  (unaudited) (unaudited)
         
Net revenues$ 47,466,381  $ 42,889,220  $ 93,076,794 $ 83,357,053 
         
Cost of revenues:        
Cost of revenues  29,849,661   28,250,672   58,700,134   55,072,046 
Network expenses (*)  1,404,826   1,494,838   2,637,757   2,716,934 
Depreciation of property and equipment  350,920   279,929   697,673   479,571 
Amortization of intangible assets  11,532   11,532   23,064   15,456 
Total cost of revenues  31,616,939   30,036,971   62,058,628   58,284,007 
         
Gross profit  15,849,442   12,852,249   31,018,166   25,073,046 
         
Expenses:        
Sales and marketing (*)  5,435,033   4,847,963   10,720,657   8,647,138 
Technical operations and development (*)  998,651   1,189,276   2,175,011   2,303,471 
General and administrative (*)  2,926,608   2,750,466   5,331,535   5,218,488 
Depreciation of property and equipment  76,922   62,022   150,190   121,284 
Amortization of intangible assets  276,918   56,997   333,915   110,212 
Impairment of indefinite life intangible assets  3,894   37,805   24,879   50,298 
Loss (gain) on currency forward contracts  (8,711)  25,227   (119,468)  329,251 
Total expenses  9,709,315   8,969,756   18,616,719   16,780,142 
         
Income from operations  6,140,127   3,882,493   12,401,447   8,292,904 
         
Other income (expenses):        
Interest expense, net  (120,528)  (57,402)  (166,700)  (82,177)
Other income  128,820   -   257,640   - 
Total other income (expenses)  8,292   (57,402)  90,940   (82,177)
         
Income before provision for income taxes  6,148,419   3,825,091   12,492,387   8,210,727 
         
Provision for income taxes  2,077,633   1,540,096   3,983,363   3,091,789 
Net income  4,070,786   2,284,995   8,509,024   5,118,938 
         
         
Redeemable non-controlling interest  (273,690)  (49,985)  (444,482)  (71,467)
         
Net (earnings) loss attributable to redeemable non-controlling interest  273,690   49,985   444,482   71,467 
         
Net income  4,070,786   2,284,995   8,509,024   5,118,938 
         
Other comprehensive income (loss), net of tax        
Unrealized loss on hedging activities  27,264   (38,046)  575,227   (998,912)
Net amount reclassified to earnings  79,367   371,955   414,924   788,029 
                 
Other comprehensive income (loss) net of tax of $60,659 and $184,262 for the three months ended June 30, 2016 and June 30, 2015 and  $544,363 and $135,616 for the six months ended June 30, 2016 and June 30, 2015  106,631   333,909   990,151   (210,883)
         
Comprehensive income, net of tax for the period$ 4,177,417 $ 2,618,904 $ 9,499,175 $ 4,908,055 
                 
Basic earnings per common share$ 0.39 $ 0.21 $ 0.80 $ 0.46 
         
Shares used in computing basic earnings per common share  10,541,659   11,047,136   10,607,843   11,094,618 
         
Diluted earnings per common share$ 0.38 $ 0.20 $ 0.79 $ 0.44 
         
Shares used in computing diluted earnings per common share  10,733,860   11,456,670   10,797,458   11,518,105 
         
         
         
(*) Stock-based compensation has been included in expenses as follows:        
Network expenses$ 5,069 $ 8,020 $ 11,864 $ 15,043 
Sales and marketing$ 60,385 $ 48,528 $ 115,263 $ 99,023 
Technical operations and development$ 25,003 $ 28,904 $ 51,401 $ 57,282 
General and administrative$ 99,730 $ 39,153 $ 211,887 $ 78,305 
         

 

Tucows  Inc.  
Consolidated Statements of Cash Flows  
(Dollar amounts in U.S. dollars)  
         
  Three months ended June 30, 
  Six months ended June 30, 
   2016   2015   2016   2015 
                 
Cash provided by: (unaudited)
 (unaudited)
Operating activities:        
Net income for the period$ 4,070,786 $ 2,284,995 $ 8,509,024 $ 5,118,938 
Items not involving cash:        
Depreciation of property and equipment  427,842   341,951   847,863   600,855 
Amortization of intangible assets  288,450   68,529   356,979   125,668 
Impairment of indefinite life intangible asset  3,894   37,805   24,879   50,298 
Deferred income taxes recovery  430,184   (801,919)  703,343   (966,169)
Amortization of deferred rent  4,749   13,039   16,664   10,547 
Disposal of domain names  12,601   11,357   20,821   17,685 
Other income  (128,820)  -   (257,640)  - 
Loss  (gain) on change in the fair value of forward contracts  (28,977)  (97,451)  (272,019)  61,342 
Stock-based compensation  190,187   124,605   390,415   249,653 
Change in non-cash operating working capital:        
Accounts receivable  (1,921,021)  (1,088,453)  (2,811,531)  (1,257,038)
Inventory  (141,830)  (45,294)  (380,917)  (158,444)
Prepaid expenses and deposits  (1,106,950)  (592,614)  (1,359,874)  (1,892,392)
Prepaid domain name registry and ancillary services fees  (3,101,043)  (755,932)  (3,898,963)  (2,218,776)
Income taxes recoverable  (36,174)  121,248   1,190,280   783,016 
Accounts payable  (1,233,092)  (109,990)  (683,296)  7,576 
Accrued liabilities  (396,328)  1,169,753   (847,574)  1,110,533 
Customer deposits  1,214,472   589,361   1,034,549   452,918 
Deferred revenue  3,597,790   983,586   5,106,372   3,045,096 
Accreditation fees payable  26,537   (18,981)  37,156   32,046 
Net cash provided by operating activities  2,173,257   2,235,595   7,726,531   5,173,352 
         
Financing activities:        
Proceeds received on exercise of stock options  37,209   299,472   56,767   547,455 
                 
Payment of tax obligations resulting from net exercise of stock options  (203,019)  -   (239,704)  - 
Excess tax benefits from share-based compensation expense  384,839   676,060   446,199   1,088,702 
Repurchase of common stock  (4,999,978)  (489,536)  (7,180,257)  (8,201,681)
Proceeds received on loan payable  -   -   6,000,000   3,500,000 
Repayment of  loan payable  (218,750)  -   (437,500)  - 
Payment of credit facility renegotiation costs  (133,500)  -   (133,500)  - 
Net cash provided by (used in) financing activities  (5,133,199)  485,996   (1,487,995)  (3,065,524)
         
Investing activities:        
Additions to property and equipment  (975,401)  (1,149,020)  (1,831,737)  (1,340,782)
Gross proceeds from the waiver of rights to .online registry  -   -   -   6,619,832 
Remaining payment for the acquisition of Ting Virginia, LLC., net of cash of $21,423  -   50,000   -   (357,493)
Acquisition of intangible assets  (196,024)  -   (6,250,570)  - 
Net cash provided by (used in) investing activities  (1,171,425)  (1,099,020)  (8,082,307)  4,921,557 
         
Increase in cash and cash equivalents  (4,131,367)  1,622,571   (1,843,771)  7,029,385 
         
Cash and cash equivalents, beginning of period  10,010,849   13,678,191   7,723,253   8,271,377 
Cash and cash equivalents, end of period$ 5,879,482 $ 15,300,762 $ 5,879,482 $ 15,300,762 
         
Supplemental cash flow information:        
Interest paid$ 120,566 $ 57,409 $ 166,947 $ 96,302 
Income taxes paid, net$ 1,274,739 $ 1,380,448 $ 1,591,959 $ 1,944,470 
         
Supplementary disclosure of non-cash investing activity:        
Property and equipment acquired during the period not yet paid for$ 46,632 $ 70,577 $ 46,632 $ 70,577 
         

 

Tucows  Inc.   
Reconciliation of Net income to Adjusted EBITDA  
(In Thousands of US Dollars)   
 
   Three months ended June 30, 
  Six months ended June 30, 
  2016 2015 2016 2015 
            
  (unaudited) (unaudited)
           
Net income for the period$4,071 $2,285 $8,509 $5,119 
Depreciation of property and equipment 428  342  848  601 
Amortization of intangible assets 288  69  357  126 
Impairment of intangible assets 4  38  25  50 
Interest expense, net 121  57  167  82 
Provision for income taxes 2,078  1,540  3,983  3,092 
Stock-based compensation 190  125  390  250 
Loss (gain) on foreign currency transactions(1) (68) (107) (354) 321 
          
Adjusted EBITDA$7,112 $4,349 $13,925 $9,641 
          
(1) Loss (gain) on unrealized foreign currency transactions comprises of the Loss (gain) on change in the fair value of forward contracts and the Loss (gain) on foreign exchange revaluation of our foreign denominated monetary assets and liabilities.  For three months ended June 30, 2016, the Company experienced a gain of less than $0.1 million on change in fair value contracts compared to a gain of $0.1 million for the three months ended June 30, 2015 as compared to a gain of $0.3 million for the six months ended June 30, 2016 and a loss of $0.1 million for the six months ended June 30, 2015.  During the three and six months ended June 30, 2016 and 2015, we experienced gains on foreign exchange revaluation of our foreign denominated monetary assets and liabilities of less than $0.1 million, respectively.
          
CONTACT: Contact:
Lawrence Chamberlain
NATIONAL Equicom
(416) 848-1457
lchamberlain@national.ca

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