Tucows Reports Financial Results for First Quarter 2021

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 revenue	70,875	83,985	(15.6%)
Gross Profit	17,453	25,150	(30.6%)
Gain on Sale of Ting Customer Assets1	5,395	-	n/a
Net income	2,149	2,834	(24.2%)
Basic Net earnings per common share	0.20	0.27	(25.9%)
Adjusted EBITDA1	12,724	12,681	0.3%
Net cash provided by operating activities	14,086	14,073	0.1%

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)

	Revenue		Gross Profit				Adj. 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 Services	5,371	4,308	2,736		2,592		(2,593	)	(1,062	)
Mobile Services:
Retail Mobile Services	2,014	20,148	960		10,291
Mobile Platform Services	349	-	291		-
Other Professional Services	1,916	-	250		-
Total Mobile Services	4,279	20,148	1,501		10,291		4,478		4,989
Domain Services:
Wholesale
Domain Services	46,991	45,964	11,216		9,495
Value Added Services	5,080	4,306	4,482		3,549
Total Wholesale	52,071	50,270	15,698		13,044
Retail	9,154	9,259	4,753		4,870
Total Domain Services	61,225	59,529	20,451		17,914		13,820		11,547
Network Expenses:
Network, other costs	n/a	n/a	(3,238	)	(2,416	)
Network, depreciation and amortization costs	n/a	n/a	(3,937	)	(3,231	)
Network, impairment	n/a	n/a	(60	)	-
Total Network expenses	n/a	n/a	(7,235	)	(5,647	)
Total	70,875	83,985	17,453		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 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 transition costs*	767	111
Income before provision for income taxes	3,232	3,935
*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