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Tucows Reports Financial Results for Third Quarter 2021


TORONTO, Nov. 04, 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 third quarter ended September 30, 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 third quarter of 2021 reflect operations under the new MSE model with the third quarter of 2020 being composed of approximately one month of operations under Tucows’ previous MVNO model and approximately two months under the new MSE 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 third quarter of 2021 were impacted by the significantly larger MVNO contribution for the third quarter of 2020. Tucows will recognize platform fees for customers owned by DISH under the Ting brand as well as customers under other DISH brands 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 third quarter of 2021.

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

3 Months ended September 30 9 Months ended September 30
2021
(Unaudited)
2020
(Unaudited)
% Change 2021
(Unaudited)
2020
(Unaudited)
% Change
Net revenue 75,893 74,311 2.1 % 221,861 240,418 (7.7 %)
Gross Profit 18,024 19,941 (9.6 %) 53,716 68,057 (21.1 %)
Gain on Sale of Ting Customer Assets1 5,564 1,090 410.5 % 15,767 1,090 1,346.5 %
Net income 1,375 716 92.0 % 5,331 3,707 43.8 %
Basic Net earnings per common share 0.13 0.07 85.7 % 0.50 0.35 42.9 %
Adjusted EBITDA1 12,205 13,270 (8.0 %) 36,083 38,124 (5.4 %)
Net cash provided by operating activities 1,492 11,432 (86.9 %) 19,095 34,444 (44.6 %)
  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. EBITDA1
  3 Months ended
September 30
3 Months ended
September 30
3 Months ended
September 30
  2021
(Unaudited)
2020
(Unaudited)
2021
(Unaudited)
2020
(Unaudited)
2021
(Unaudited)
2020
(Unaudited)
Fiber Internet Services:    
Fiber Internet Services 6,672 4,657 3,019 2,975 (4,358 ) (1,052 )
             
Mobile Services:
Retail Mobile Services 2,309 7,019 608 3,579    
Mobile Platform Services 3,564 376 3,444 376    
Other Professional Services 2,619 1,457 806 190    
Total Mobile Services 8,492 8,852 4,858 4,145 7,648   5,182  
             
Domain Services:    
Wholesale            
Domain Services 47,081 47,261 9,972 10,449    
Value Added Services 4,862 4,380 4,174 3,691    
Total Wholesale 51,943 51,641 14,146 14,140    
             
Retail 8,786 9,161 4,330 4,721    
Total Domain Services 60,729 60,802 18,476 18,861 12,024   12,024  
Network Expenses:    
Network, other costs n/a n/a 3,445 2,612 n/a   n/a  
Network, depreciation and amortization costs n/a n/a 4,643 3,315 n/a   n/a  
Network, impairment n/a n/a 241 113 n/a   n/a  
Total Network expenses n/a n/a 8,329 6,040 n/a   n/a  
                 
Total 75,893 74,311 18,024 19,941 n/a   n/a  

“The third quarter once again saw solid financial performance across Tucows businesses,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Our Domains Services continued to deliver consistent performance, benefitting from the higher level of domains under management driven by the pandemic impact last year, as well as our success in maximizing gross margin. In our Mobile Services business, our third quarter results reflect the growing contribution of our new MSE Platform business, which continues to move forward in line with our expectations. And in our Fiber Internet Services business, we continued to make strong, steady progress in the accelerated build out of our network and our customer base, with serviceable addresses and subscribers increasing 48% and 67%, respectively, as we repeated our record level of new subscriber additions achieved in the second quarter.”

Financial Results

Net revenue for the third quarter of 2021 was $75.9 million compared with $74.3 million for the third quarter of 2020. The increase was the result of growth in revenue from the Fiber Internet Services and both Mobile Platform Services and Other Professional Services under the new MSE model, which were partially offset by the absence of Ting Mobile MVNO revenue in the third quarter of 2021, following the Company’s sale of its Ting Mobile customer relationships to DISH on August 1, 2020 and the related earn out being recognized as Other Income. This compares with approximately one month’s contribution in the third quarter of 2020. Excluding the Mobile Services business, net revenue for the combined Domains Services and Fiber Internet businesses for the third quarter of 2021 increased 3% from the third quarter of 2020. Revenue for Mobile Services for the third quarter of 2021 decreased 4% from the third quarter of 2020.

Gross profit for the third quarter of 2021 was $18.0 million compared with $19.9 million for the third quarter of 2020. Excluding the Mobile Services business, gross margin for the combined Domains Services and Fiber Internet Services businesses for the third quarter of 2021 decreased 2% from the third quarter of 2020. Gross profit for Mobile Services for the third quarter of 2021 increased 17% from the third quarter of 2020 due to growth in revenue under the new MSE model.

Net income for the third quarter of 2021 was $1.4 million, or $0.13 per share, compared with $0.7 million, or $0.07 per share, for the third quarter of 2020.

Adjusted EBITDA1 for the third quarter of 2021 was $12.2 million compared with $13.3 million for the third quarter of 2020. Adjusted EBITDA1 reflects the continued investment in Fiber Internet Services.

Cash and cash equivalents at the end of the third quarter of 2021 were $5.5 million compared with $7.3 million at the end of the second quarter of 2021 and $10.2 million at the end of the third 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 September 30 9 months ended September 30
  2021
(Unaudited)
2020
(Unaudited)
2021
(Unaudited)
2020
(Unaudited)
Adjusted EBITDA 12,205 13,270   36,083 38,124  
Depreciation of property and equipment 4,758 3,110   12,728 9,255  
Impairment and loss on disposition of property and equipment 470 113   536 1,638  
Amortization of intangible assets 2,288 2,645   7,253 8,776  
Impairment of definite life intangible assets   1,431  
Disposal of Ting Mobile customer assets 3,513   3,513  
Interest expense, net 1,169 760   3,108 2,756  
Accretion of contingent consideration 96 86   287 258  
Stock-based compensation 1,126 1,016   3,357 2,664  
Unrealized loss (gain) on change in fair value of forward contracts 249 (175 ) 606 (263 )
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities 72 81   178 479  
Acquisition and transition costs* 901 565   2,034 1,520  
         
Income before provision for income taxes 1,076 1,556   5,996 6,097  
*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, November 4, 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 eight days, until Friday, November 12, 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 Thursday, November 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 25 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)
 
  September 30,   December 31,
    2021       2020  
  (unaudited) (unaudited)
 
Assets  
 
Current assets:  
Cash and cash equivalents   $ 5,535     $ 8,311  
Accounts receivable     14,822       15,540  
Contract asset, current portion     2,783        
Inventory     3,111       1,875  
Prepaid expenses and deposits     18,719       16,845  
Derivative instrument asset, current portion           3,860  
Deferred costs of fulfillment, current portion     94,970       93,467  
Income taxes recoverable     3,892       1,302  
Total current assets     143,832       141,200  
         
Deferred costs of fulfillment, long-term portion     18,226       17,599  
Derivative instrument asset, long-term portion     78        
Property and equipment     155,236       117,530  
Right of use operating lease asset     16,138       11,238  
Contract costs     806       362  
Deferred tax asset     153       226  
Intangible assets     40,413       47,444  
Goodwill     116,304       116,304  
Investment     2,012        
Total assets   $ 493,198     $ 451,903  
         
         
Liabilities and Stockholders’ Equity          
         
Current liabilities:          
Accounts payable   $ 9,260     $ 6,329  
Accrued liabilities     12,176       10,235  
Customer deposits     15,139       15,402  
Derivative instrument liability, current portion     453       99  
Operating lease liability, current portion     2,588       1,761  
Deferred revenue, current portion     127,792       127,336  
Accreditation fees payable, current portion     913       940  
Income taxes payable     62       863  
Total current liabilities     168,383       162,965  
         
Derivative instrument liability, long-term portion           114  
Deferred revenue, long-term portion     24,195       24,909  
Accreditation fees payable, long-term portion     177       195  
Operating lease liability, long-term portion     11,103       9,179  
Loan payable, long-term portion     149,937       121,733  
Other long-term liability     3,703       3,416  
Deferred tax liability     22,481       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; 10,696,779 shares issued and outstanding as of September 30, 2021 and 10,612,414 shares issued and outstanding as of December 31, 2020   25,520       20,798  
Additional paid-in capital     2,550       1,458  
Retained earnings     85,437       80,106  
Accumulated other comprehensive income (loss)     (288 )     2,336  
Total stockholders’ equity     113,219       104,698  
Total liabilities and stockholders’ equity   $ 493,198     $ 451,903  

 

                 
 Tucows  Inc. 
 Consolidated Statements of Operations and Comprehensive Income 
 (Dollar amounts in thousands of U.S. dollars) 
 
  Three months ended
September 30,
Nine months ended
September 30,
    2021     2020     2021     2020  
     
  (unaudited)  (unaudited) 
 
Net revenues $ 75,893   $ 74,311   $ 221,861   $ 240,418  
               
Cost of revenues:                
Direct cost of revenues   49,540     48,330     144,860     153,308  
Network expenses (*)   3,445     2,612     10,295     7,513  
Depreciation of property and equipment   4,622     2,985     12,344     8,892  
Amortization of intangible assets   21     330     344     1,010  
Impairment of property and equipment   241     113     302     1,638  
Total cost of revenues   57,869     54,370     168,145     172,361  
               
Gross profit   18,024     19,941     53,716     68,057  
               
Expenses:                
Sales and marketing (*) $ 9,892   $ 8,318   $ 27,579   $ 26,521  
Technical operations and development (*)   3,742     3,162     10,044     8,980  
General and administrative (*)   5,069     4,868     15,232     15,074  
Depreciation of property and equipment   136     125     384     363  
Loss on disposition of property and equipment   229         234      
Amortization of intangible assets   2,267     2,315     6,909     7,766  
Impairment of definite life intangible assets               1,431  
Loss (gain) on currency forward contracts   (87 )   (159 )   (277 )   (99 )
Total expenses   21,248     18,629     60,105     60,036  
               
Income from operations   (3,224 )   1,312     (6,389 )   8,021  
               
Other income (expenses):                
Interest expense, net   (1,169 )   (760 )   (3,108 )   (2,756 )
Gain on sale of Ting Customer Assets, net   5,564     1,090     15,767     1,090  
Other expense, net   (95 )   (86 )   (274 )   (258 )
Total other income (expenses)   4,300     244     12,385     (1,924 )
               
Income before provision for income taxes   1,076     1,556     5,996     6,097  
               
Provision for income taxes   (299 )   840     665     2,390  
Net income before redeemable non-controlling interest 1,375     716     5,331     3,707  
               
Redeemable non-controlling interest                
               
Net income attributable to redeemable non-controlling interest              
Net income for the period   1,375     716     5,331     3,707  
               
Other comprehensive income, net of tax                
Unrealized income (loss) on hedging activities   (501 )   729     115     609  
Net amount reclassified to earnings   (884 )   46     (2,739 )   289  
Other comprehensive income net of tax expense (recovery) of $(419) and $230 for the three months ended September 30, 2021 and September 30, 2020, ($794) and $262 for the nine months ended September 30, 2021 and Septmeber 30, 2020 (1,385 )   775     (2,624 )   898  
                       
Comprehensive income, net of tax for the period $ (10 ) $ 1,491   $ 2,707   $ 4,605  
                         
Basic earnings per common share $ 0.13   $ 0.07   $ 0.50   $ 0.35  
                         
Shares used in computing basic earnings per common share   10,679,309     10,577,731     10,643,798     10,585,785  
                         
Diluted earnings per common share $ 0.13   $ 0.07   $ 0.49   $ 0.35  
                         
Shares used in computing diluted earnings per common share   10,819,716     10,682,808     10,800,361     10,679,162  
                         
                         
                         
(*) Stock-based compensation has been included in expenses as follows:                        
Network expenses $ 131   $ 138   $ 400   $ 333  
Sales and marketing $ 443   $ 457   $ 1,498   $ 1,203  
Technical operations and development $ 209   $ 208   $ 610   $ 558  
General and administrative $ 344   $ 214   $ 849   $ 570  

 

 
Tucows  Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in thousands of U.S. dollars)
 
  Three months ended
September 30,
Nine months ended
September 30,
    2021     2020     2021     2020  
Cash provided by: (unaudited) (unaudited)
Operating activities:  
Net income for the period $ 1,375   $ 716   $ 5,331   $ 3,707  
Items not involving cash:                
Depreciation of property and equipment   4,758     3,110     12,728     9,255  
Impairment of property and equipment   241     113     302     1,638  
Amortization of debt discount and issuance costs   68     68     202     202  
Amortization of intangible assets   2,288     2,645     7,253     8,776  
Net amortization contract costs   (189 )   (15 )   (444 )   109  
Impairment of definite life intangible assets               1,431  
Other               223  
Accretion of contingent consideration   96     86     287     258  
Deferred income taxes (recovery)   (488 )   180     (1,368 )   (927 )
Excess tax benefits on share-based compensation expense   (323 )   (164 )   (868 )   (508 )
Net Right of use operating assets/Operating lease liability   (2,378 )   137     (2,149 )   249  
Loss on disposal of domain names           1     15  
Loss (gain) on change in the fair value of forward contracts   249     (175 )   606     (263 )
Write-down on disposal of Ting Mobile customer assets       3,513         3,513  
Stock-based compensation   1,126     1,016     3,357     2,664  
Change in non-cash operating working capital:                
Accounts receivable   (11 )   118     718     2,670  
Contract asset   (2,783 )       (2,783 )    
Inventory   (275 )   (123 )   (1,236 )   1,681  
Prepaid expenses and deposits   918     2,905     (1,874 )   (317 )
Deferred costs of fulfillment   1,442     984     (2,130 )   (4,073 )
Income taxes recoverable   532     (2,475 )   (2,502 )   (1,681 )
Accounts payable   271     509     2,289     759  
Accrued liabilities   (1,828 )   (668 )   1,941     (334 )
Customer deposits   (673 )   69     (263 )   463  
Deferred revenue   (2,873 )   (1,070 )   (258 )   4,927  
Accreditation fees payable   (51 )   (47 )   (45 )   7  
Net cash provided by operating activities   1,492     11,432     19,095     34,444  
               
Financing activities:                
Proceeds received on exercise of stock options   1,368     632     2,844     678  
Payment of tax obligations resulting from net exercise of stock options (89 )   (132 )   (387 )   (479 )
Repurchase of common stock               (3,281 )
Proceeds received on loan payable   10,000         28,000      
Payment of loan payable costs               (32 )
Net cash (used in) provided by financing activities   11,279     500     30,457     (3,114 )
               
Investing activities:                
Cost of Domain Names acquired                
Additions to property and equipment   (14,488 )   (10,636 )   (50,093 )   (32,729 )
Gross proceeds from the waiver of rights to .online registry                
Acquisition of other assets                
Acquisition of Cedar Holdings Group, net of cash of $66               (8,770 )
Acquisition of Ascio Technologies Inc. (net of cash of $1,437)                
Acquisition of intangible assets   (6 )       (223 )   (69 )
Investment in securities           (2,012 )    
Net cash used in investing activities   (14,494 )   (10,636 )   (52,328 )   (41,568 )
               
(Decrease) increase in cash and cash equivalents   (1,723 )   1,296     (2,776 )   (10,238 )
               
Cash and cash equivalents, beginning of period   7,258     8,859     8,311     20,393  
Cash and cash equivalents, end of period $ 5,535   $ 10,155   $ 5,535   $ 10,155  
               
Supplemental cash flow information:                
Interest paid $ 1,144   $ 635   $ 3,038   $ 2,638  
Income taxes paid, net $ 212   $ 3,249   $ 6,008   $ 5,449  
               
Supplementary disclosure of non-cash investing and financing activities:              
Property and equipment acquired during the period not yet paid for $ 1,772   $ 1,697   $ 1,772   $ 1,697  
Fair value of shares issues for acquisition of Cedar Holdings Group $   $   $   $ 2,000  
Fair value of contingent consideration for acquisition of Cedar Holdings Group $   $   $   $ 3,072  
                         

 

Reconciliation of Net income to Adjusted EBITDA                  
(In Thousands of U.S. Dollars) Three months ended September 30, Nine months ended September 30,
(unaudited)   2021 (unaudited)   2020 (unaudited)   2021 (unaudited)   2020 (unaudited)
   
Net income for the period $ 1,375   $ 716   $ 5,331   $ 3,707  
Depreciation of property and equipment   4,758     3,110     12,728     9,255  
Impairment of property and equipment   470     113     536     1,638  
Amortization of intangible assets   2,288     2,645     7,253     8,776  
Impairment of indefinite life intangible assets             1,431  
Write-down on disposal of Ting Mobile assets     3,513         3,513  
Interest expense, net   1,169     760     3,108     2,756  
Accretion of contingent consideration   96     86     287     258  
Provision for income taxes   (299 )   840     665     2,390  
Stock-based compensation   1,126     1,016     3,357     2,664  
Unrealized loss (gain) on change in fair value of forward contracts 249     (175 )   606     (263 )
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities 72     81     178     479  
Acquisition and other costs1   901     565     2,034     1,520  
                 
Adjusted EBITDA $ 12,205   $ 13,270   $ 36,083   $ 38,124  
 
1Acquisition and other costs represents transaction-related expenses, transitional expenses, such as duplicative 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

Tucows Inc



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