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
%
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.
This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.
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.