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| Press Release

Tucows Reports Continuing Strong Financial Results for Fourth Quarter and Full Year 2018

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 3112 Months Ended December 31
2017
(Unaudited)
2016
(Unaudited)
%
Change
2017
(Unaudited)
2016
(Unaudited)
%
Change
Net revenue90,62148,80586%329,421189,81974%
Net income111,1992,817298%22,32716,06739%
Basic Net earnings per common share11.060.27293%2.121.5339%
Adjusted EBITDA2,315,2757,333108%41,35630,13037%
Net cash provided by operating activities14,0819,06755%31,89722,50942%
         
  1. 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.
  2. This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.
  3. 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)
 
 RevenueGross Margin
 3 Months ended
December 31
3 Months ended
December 31
 2017
(Unaudited)
2016
(Unaudited)
2017
(Unaudited)
2016
(Unaudited)
Network Access Services:
Mobile Services23,79517,83911,094 8,951 
Other Services1,357919405 254 
Total Network Access Services25,15218,75811,499 9,205 
     
Domain Services:
Wholesale    
Domain Services48,32023,130 6,514 4,398 
Value Added Services4,5382,3363,978 1,819 
Total Wholesale52,85825,46610,492 6,217 
     
Retail8,7113,8834,141 2,086 
Portfolio3,9006983,377 555 
Total Domain Services65,46930,04718,010 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 margin90,62148,80525,736 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 contracts54   (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.

Contact:
Lawrence Chamberlain
(416) 519-4196
lawrence.chamberlain@loderockadvisors.com

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