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Tucows Reports Financial Results for First Quarter 2022

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TORONTO, May 5, 2022 /CNW/ - Tucows Inc. (NASDAQ: TCX) (TSX: TC), a global internet services leader, today reported its financial results for the first quarter ended March 31, 2022. All figures are in U.S. dollars.

"The first quarter was a very solid start to 2022, with revenue and gross profit up 14% and 22% year-over-year, respectively, driven by strong growth in each of our Ting Internet Services ("Ting") and Wavelo Platform Services ("Wavelo") businesses, as our Tucows Domain Services ("Tucows Domains") business delivered another quarter of consistent performance," said Elliot Noss, President and Chief Executive Officer, Tucows Inc. "Adjusted EBITDA decreased 11% from the first quarter last year as we continued to accelerate the build of our Fiber network and ramp up of operations. We achieved a new record for trailing 12-month capital expenditure for the Ting opportunity."

Financial Results

Net revenue for the first quarter of 2022 increased 14% to $81.1 million from $70.9 million for the first quarter of 2021. The increase was the result of growth in revenue from each of Ting Internet Services and Wavelo Platform Services businesses.

Gross profit for the first quarter of 2022 increased 22% to $21.2 million from $17.5 million for the first quarter of 2021. The increase was the result of the same factors as net revenue.

Net loss for the first quarter of 2021 was $3.0 million, or a loss of $0.28 per share, compared with net income of $2.1 million, or $0.20 per share, for the first quarter of 2021 with the loss being the result of accelerated build of our Ting Internet Services fiber network and ramp up of operations, higher depreciation and interest expenses.

Adjusted EBITDA1 for the first quarter of 2022 decreased 11% to $11.3 million from $12.7 million for the first quarter of 2021. The modest decline in adjusted EBITDA1 reflects the accelerated build of our Ting Internet Services fiber network and ramp up of operations.

Cash and cash equivalents at the end of the first quarter of 2022 were $6.2 million compared with $9.1 million at the end of the fourth quarter of 2021 and $8.3 million at the end of the first quarter of 2021.

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


3 Months ended March 31

2022

(Unaudited)

2021

(Unaudited)

% Change

Net Revenues

81,099

70,875

14.4%

Gross Profit

21,198

17,453

21.5%

Gain on Sale of Ting Customer Assets, net1

4,752

5,395

(11.9%)

Net income

(3,020)

2,149

(240.5%)

Basic earnings per common share

(0.28)

0.20

(239.1%)

Adjusted EBITDA1

11,311

12,724

(11.1%)

Net cash provided by operating activities

5,407

14,086

(61.6%)

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

March 31

3 Months ended

March 31

3 Months ended

March 31


2022

(Unaudited)

2021

(Unaudited)

2022

(Unaudited)

2021

(Unaudited)

2022

(Unaudited)

2021

(Unaudited)

Ting Internet Services:



Fiber Internet Services

9,788

5,082

5,750

2,473

(4,321)

(3,927)








Wavelo Platform Services:

Platform Services

6,097

638

5,912

553



Other Professional Services

750

-

(26)

-



Total Wavelo Platform Services

6,847

638

5,886

553

2,047

(1,080)








Tucows Domain Services:



Wholesale







Domain Services

46,836

46,991

10,439

11,218



Value Added Services

5,649

5,080

4,993

4,481



Total Wholesale

52,485

52,071

15,432

15,699










Retail

9,061

9,154

4,302

4,753



Total Tucows Domain Services

61,546

61,225

19,734

20,452

11,774

13,196

Corporate:



Mobile Services and Eliminations

2,918

3,930

308

1,210

1,811

4,535

Network Expenses:



Network, other costs

n/a

n/a

(4,180)

(3,238)

n/a

n/a

Network, depreciation of property and equipment

n/a

n/a

(5,895)

(3,638)

n/a

n/a

Network, amortization of intangible assets

n/a

n/a

(378)

(299)

n/a

n/a

Network, impairment of property and equipment

n/a

n/a

(27)

(60)

n/a

n/a

Total Network expenses

n/a

n/a

(10,480)

(7,235)

n/a

n/a








Total

81,099

70,875

21,198

17,453

n/a

n/a

Change in Reporting Segments

During the first quarter of 2022, Tucows completed a reorganization into three businesses: Fiber Internet Services ("Ting"), Platform Services ("Wavelo") and Domain Services ("Tucows Domains"). Previously, we disclosed the three operating and reportable segments: Fiber Internet Services, Mobile Services and Domain Services. The previously named Mobile Services segment was renamed the Platform Services segment, and no longer includes the 10-year payment stream on transferred legacy subscribers earned as part of the DISH Purchase Agreement as well as the retail sale of mobile phones, retail telephony services and transition services, which are now part of the financial results reported under the Corporate category. The renamed Platform Services segment includes Platform and Professional Services offerings (now branded as Wavelo), as well as the billing solutions to Internet services providers ("ISPs") that was previously reported under the Fiber Internet Services segment. The Fiber Internet Services segment now includes only the retail high speed Internet access operations, excluding the billing solutions moved to the new Platform Services segment. The offerings included in the Domain Services segment are unchanged. The Corporate category includes the aforementioned mobile services, as well as eliminations of intercompany transactions, portions of Finance and Human Resources that are centrally managed, Legal and Corporate IT. Prior period comparable results have been restated to reflect the changes in reporting segments. A quarterly summary of the Company's restated segment revenue, gross margin and EBITDA for 2021 and annual 2020 can be found in the "KPI Summary Q1 2022" supplementary disclosure, posted on https://tucows.com/investors/financials/.

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 certain 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, impairment and loss on disposition of property and equipment, 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


2022

(Unaudited)

2021

(Unaudited)

Adjusted EBITDA

11,311

12,724

Depreciation of property and equipment

6,043

3,759

Impairment and loss on disposition of property and equipment

412

60

Amortization of intangible assets

2,843

2,619

Interest expense, net

1,796

936

Accretion of contingent consideration

98

96

Stock-based compensation

1,391

1,022

Unrealized loss (gain) on change in fair value of forward contracts

-

166

Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities

53

67

Acquisition and transition costs*

617

767




Income before provision for income taxes

(1,942)

3,232

*Acquisition and other costs represent transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses, primarily related to our acquisitions, including Simply Bits in November 2021. Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments.

Management Commentary

Concurrent with the dissemination of this news release, management's pre-recorded audio commentary (and transcript) discussing the quarter and outlook for the Company, has been 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, May 13), 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, May 25, 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 helps connect more people to the benefit of internet access through communications service technology, domain services, and fiber-optic internet infrastructure. Ting (https://ting.com) delivers fixed fiber Internet access with outstanding customer support. Wavelo (http://wavelo.com) is a telecommunications software suite for service providers that simplifies the management of mobile and internet network access, provisioning, billing and subscription, developer tools, and more. 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 35,000 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).


Tuscows Inc.
Consolidated Balance Sheets

(Dollar amounts in thousands of U.S. dollars)








March 31,


December 31



2022


2021



(unaudited)


(unaudited)






Assets










Current assets:





Cash and cash equivalents


$ 6,201


$ 9,105

Accounts receivable


16,391


14,579

Contract asset


3,283


778

Inventory


3,558


3,277

Prepaid expenses and deposits


23,221


20,986

Derivative instrument asset, current portion


1,358


299

Deferred costs of fulfillment, current portion


96,986


94,506

Income taxes recoverable


3,249


3,474

Total current assets


154,247


147,004






Deferred costs of fulfillment, long-term portion


17,674


18,205

Derivative instrument asset, long-term portion


459


278

Property and equipment


191,456


172,662

Right of use operating lease asset


18,136


17,515

Contract costs


1,306


1,079

Deferred tax asset


20


22

Intangible assets


47,659


50,409

Goodwill


130,410


130,410

Investment


2,012


2,012

Total assets


$ 563,379


$ 539,596











Liabilities and Stockholders' Equity










Current liabilities:





Accounts payable


$ 14,103


$ 10,016

Accrued liabilities


16,351


15,240

Customer deposits


16,351


16,974

Derivative instrument liability, current portion


-


125

Operating lease liability, current portion


3,463


3,150

Deferred revenue, current portion


128,413


124,116

Accreditation fees payable, current portion


882


882

Income taxes payable


307


102

Other current liabilities


2,974


3,078

Total current liabilities


182,844


173,683






Derivative instrument liability, long-term portion


-


-

Deferred revenue, long-term portion


23,753


23,677

Accreditation fees payable, long-term portion


156


170

Operating lease liability, long-term portion


12,220


11,853

Loan payable, long-term portion


207,183


190,748

Other long-term liability


-


1,804

Deferred tax liability


22,211


22,569






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; 10,762,581 shares issued and outstanding as of March 31, 2022 and
10,747,417 shares issued and outstanding as of December 31, 2021


29,655


28,515

Additional paid-in capital


3,530


2,764

Retained earnings


80,450


83,470

Accumulated other comprehensive income (loss)


1,377


343

Total stockholders' equity


115,012


115,092

Total liabilities and stockholders' equity


$ 563,379


$ 539,596



Tucows Inc.



Consolidated Statements of Operations
and Comprehensive Income



(Dollar amounts in thousands of U.S. dollars)













Three months ended March 31,



2022


2021



(unaudited)






Net revenues

$

81,099

$

70,875






Cost of revenues:





Direct cost of revenues


49,421


46,187

Network, other costs


4,180


3,238

Network, depreciation of property and equipment


5,895


3,638

Network, amortization of intagible assets (note 6)


378


299

Network, impairment of property and equipment


27


60

Total cost of revenues


59,901


53,422






Gross profit


21,198


17,453






Expenses:





Sales and marketing (*)

$

11,987

$

8,311

Technical operations and development (*)


3,765


3,132

General and administrative (*)


7,296


4,953

Depreciation of property and equipment


148


121

Loss on disposition of property and equipment


385


-

Amortization of intangible assets


2,465


2,320

Loss (gain) on currency forward contracts


-


(253)

Total expenses


26,046


18,584






Income from operations


(4,848)


(1,131)






Other income (expenses):





Interest expense, net


(1,796)


(936)

Gain on sale of Ting Customer Assets, net


4,752


5,395

Other expense, net


(50)


(96)

Total other income (expenses)


2,906


4,363






Income before provision for income taxes


(1,942)


3,232






Provision for income taxes


1,078


1,083

Net income for the period


(3,020)


2,149






Other comprehensive income, net of tax





Unrealized income (loss) on hedging activities


968


368

Net amount reclassified to earnings


66


(834)

Other comprehensive income net of tax expense (recovery)
of $(235) and $398 for the three months ended June 30, 2021 and June 30,
2020, $(375) and $32 for the six months ended June 30, 2021 and June 30, 2020


1,034


(466)






Comprehensive income, net of tax for the period

$

(1,986)

$

1,683






Basic earnings per common share

$

(0.28)

$

0.20






Shares used in computing basic earnings per common share


10,754,758


10,617,807






Diluted earnings per common share

$

(0.28)

$

0.20






Shares used in computing diluted earnings per common share


10,754,758


10,796,762
















(*) Stock-based compensation has been included in expenses as follows:





Network expenses

$

110

$

125

Sales and marketing

$

375

$

505

Technical operations and development

$

118

$

167

General and administrative

$

788

$

225



Tucows Inc.



Consolidated Statements of Cash Flows



(Dollar amounts in thousands of U.S. dollars)








Three months ended March 31,



2022


2021

Cash provided by:


(unaudited)

Operating activities:





Net income for the period

$

(3,020)

$

2,149

Items not involving cash:





Depreciation of property and equipment


6,043


3,759

Impairment of property and equipment


27


60

Amortization of debt discount and issuance costs


120


67

Amortization of intangible assets


2,843


2,619

Net amortization contract costs


(227)


(7)

Accretion of contingent consideration


98


96

Deferred income taxes (recovery)


(686)


(220)

Excess tax benefits on share-based compensation expense


(52)


(172)

Net Right of use operating assets/Operating lease liability


59


55

Loss on disposal of domain names


2


1

Loss (gain) on change in the fair value of forward contracts


-


166

Disposal of Ting Mobile customer assets


-


-

Stock-based compensation


1,391


1,022

Change in non-cash operating working capital:





Accounts receivable


(1,812)


(328)

Contract asset


(2,505)


-

Inventory


(281)


(442)

Prepaid expenses and deposits


(2,235)


2,266

Deferred costs of fulfillment


(1,949)


(4,111)

Income taxes recoverable


482


(689)

Accounts payable


2,267


1,451

Accrued liabilities


1,111


793

Customer deposits


(623)


125

Deferred revenue


4,368


5,349

Accreditation fees payable


(14)


77

Net cash provided by operating activities


5,407


14,086






Financing activities:





Proceeds received on exercise of stock options


515


229

Payment of tax obligations resulting from net exercise of stock options


-


(218)

Proceeds received on loan payable


16,500


-

Payment of loan payable costs


(177)


-

Contingent consideration for acquisition of Cedar Holdings Group


(2,000)


-

Net cash (used in) provided by financing activities


14,838


11






Investing activities:





Additions to property and equipment


(23,054)


(13,944)

Investment in securities


(95)


(154)

Net cash used in investing activities


(23,149)


(14,098)






(Decrease) increase in cash and cash equivalents


(2,904)


(1)






Cash and cash equivalents, beginning of period


9,105


8,311

Cash and cash equivalents, end of period

$

6,201

$

8,310






Supplemental cash flow information:





Interest paid

$

1,683

$

949

Income taxes paid, net

$

896

$

2,381






Supplementary disclosure of non-cash investing and financing activities:





Property and equipment acquired during the period not yet paid for

$

1,909

$

3,320

Reconciliation of Adjusted EBITDA to Income before Provision for Income Taxes





(In Thousands of U.S. Dollars)


Three months ended March 31,

(unaudited)


2022 (unaudited)


2021 (unaudited)






Adjusted EBITDA

$

11,311

$

12,724

Depreciation of property and equipment


6,043


3,759

Impairment and loss on disposition of property and equipment


412


60

Amortization of intangible assets


2,843


2,619

Impairment of indefinite life intangible assets


-


-

Interest expense, net


1,796


936

Accretion of contingent consideration


98


96

Stock-based compensation


1,391


1,022

Unrealized loss (gain) on change in fair value of forward contracts


-


166

Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities


53


67

Acquisition and other costs1


617


767






Income before provision for income taxes

$

(1,942)

$

3,233


1Acquisition and other costs represent transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses, primarily related to our acquisitions, including Simply Bits in November 2021. 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 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, Wavelo, OpenSRS, Enom, Ascio and Hover are registered trademarks of Tucows Inc. or its subsidiaries.

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View original content:https://www.prnewswire.com/news-releases/tucows-reports-financial-results-for-first-quarter-2022-301541284.html

SOURCE Tucows

Cision
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View original content: http://www.newswire.ca/en/releases/archive/May2022/05/c3124.html

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