Tucows Reports Financial Results for Second Quarter 2021

TORONTO, Aug. 05, 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 second quarter ended June 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 second quarter of 2021 reflects operations under the new MSE model with prior periods being composed entirely of operations under Tucows’ previous MVNO model.

Under the terms of the earn out arrangement for the Ting customer base acquired by DISH, the income generated by the customer base acquired by Dish are recognized (net of expenses) as “Other Income” under the heading “Gain on Sale of Ting Customer Assets”. As a result, revenue and gross margin for the Mobile Services segment for the second quarter of 2021 are lower than those for the second quarter of 2020. Tucows will recognize fees per subscriber for customers owned by DISH under the Ting brand as well as customers under DISH’s Boost brand that are added to Tucows’ MSE platform, as Mobile Platform Services revenue under the terms of the MSE Agreement signed with DISH. For more information, see Tucows’ Financial Statements and Management Discussion and Analysis for the second quarter of 2021.

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

	3 Months ended June 30				6 Months ended June 30
	2021 (Unaudited)	2020 (Unaudited)	% Change		2021 (Unaudited)	2020 (Unaudited)	% Change
Net revenue	75,093	82,122	(8.6%)		145,968	166,107	(12.1%)
Gross Profit	18,239	22,966	(20.6%)		35,692	48,116	(25.8%)
Gain on Sale of Ting Customer Assets1	4,808	-	n/a		10,203	-	n/a
Net income	1,807	157	1,051%		3,956	2,991	32.3%
Basic Net earnings per common share	0.17	0.01	1,600%		0.37	0.28	31.8%
Adjusted EBITDA1	11,158	12,175	(8.4%)		23,881	24,856	(3.9%)
Net cash provided by operating activities	3,518	8,939	(60.6%)		17,604	23,012	(23.5%)

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 June 30		3 Months ended June 30		3 Months ended June 30
	2021 (Unaudited)	2020 (Unaudited)	2021 (Unaudited)	2020 (Unaudited)	2021 (Unaudited)		2020 (Unaudited)
Fiber Internet Services:
Fiber Internet Services	5,825	4,414	2,799	2,749	(3,320)		(1,071)
Mobile Services:
Retail Mobile Services	2,548	17,567	1,061	8,907
Mobile Platform Services	2,457	-	2,364	-
Other Professional Services	2,001	-	261	-
Total Mobile Services	7,006	17,567	3,686	8,907	5,284		3,868
Domain Services:
Wholesale
Domain Services	47,883	46,206	10,176	9,852
Value Added Services	5,482	4,741	4,899	4,008
Total Wholesale	53,365	50,947	15,075	13,860
Retail	8,897	9,194	4,400	4,816
Total Domain Services	62,262	60,141	19,475	18,676	12,750		12,351
Network Expenses:
Network, other costs	n/a	n/a	3,612	2,485	n/a		n/a
Network, depreciation and amortization costs	n/a	n/a	4,108	3,356	n/a		n/a
Network, impairment	n/a	n/a	1	1,525	n/a		n/a
Total Network expenses	n/a	n/a	7,721	7,366	n/a		n/a
Total	75,093	82,122	18,239	22,966	n/a		n/a

“The second quarter marked another solid financial performance for Tucows with revenue and gross margin from our Domains Services and Fiber Internet Services businesses increasing 5% and 4%, respectively, year-over-year,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “On top of its continued consistency, our Domain Services business is benefitting from the growth in domains under management generated by the pandemic impact last year, as well as our focus on maximizing gross margin. Our Mobile Services business continues to move forward in line with our expectations. And Ting Internet once again saw record performance across key build metrics, including by far our largest capital expenditure and passed address additions in a quarter, as growth in the subscriber base gained further momentum, with net additions up 47% from Q1 and more than triple that of Q2 of last year.”

Financial Results

Net revenue for the second quarter of 2021 was $75.1 million compared with $82.1 million for the second quarter of 2020. The majority of the decrease was the result of the absence of Ting Mobile MVNO revenue in the second quarter of 2021 following the Company’s sale of its Ting Mobile customer relationships to DISH during the third quarter of 2020 and the related earn out being recognized as Other Income. Excluding the Mobile Services business, net revenue for the combined Domains Services and Ting Internet businesses for the second quarter of 2021 increased 5% from the second quarter of 2020.

Gross profit for the second quarter of 2021 was $18.2 million compared with $23.0 million for the second quarter of 2020. The decrease in gross profit is attributable to the same factors as the decrease in revenue. Excluding the Mobile Services business, gross margin for the combined Domains Services and Ting Internet businesses for the second quarter of 2021 increased 4% from the second quarter of 2020.

Net income for the second quarter of 2021 was $1.8 million, or $0.17 per share, compared with $0.2 million, or $0.01 per share, for the second quarter of 2020.

Adjusted EBITDA¹ for the second quarter of 2021 was $11.2 million compared with $12.2 million for the second quarter of 2020. Adjusted EBITDA¹ is impacted by the continued investment in Ting Fiber.

Cash and cash equivalents at the end of the second quarter of 2021 were $7.3 million compared with $8.3 million at the end of the first quarter of 2021 and $8.9 million at the end of the second 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 June 30			6 months ended June 30
	2021 (Unaudited)	2020 (Unaudited)		2021 (Unaudited)	2020 (Unaudited)
Adjusted EBITDA	11,158	12,175		23,881	24,856
Depreciation of property and equipment	4,211	3,155		7,970	6,145
Impairment and loss on disposition of property and equipment	6	1,525		66	1,525
Amortization of intangible assets	2,346	2,830		4,965	6,131
Impairment of definite life intangible assets	-	1,431		-	1,431
Interest expense, net	1,003	846		1,939	1,996
Accretion of contingent consideration	95	85		191	172
Stock-based compensation	1,209	847		2,231	1,648
Unrealized loss (gain) on change in fair value of forward contracts	191	(436)		357	(88)
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities	42	441		106	399
Acquisition and transition costs*	367	845		1,136	956
Income before provision for income taxes	1,688	606		4,920	4,541
*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, August 5, 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 six days, until Wednesday, August 11, shareholders, analysts and prospective investors can submit questions to Tucows’ management at ir@tucows.com. Management will post responses to questions of general interest (audio recording and transcript) to the Company’s website at http://www.tucows.com/investors/financials/ on Tuesday, August 17, at approximately 4 pm ET. All questions will receive a response, however, questions of a more specific nature may be responded to directly.

About Tucows

Tucows is a provider of Fiber Internet Services, Mobile Services, Domain Name Services and other Internet services. Ting Internet (https://ting.com/internet) delivers fixed fiber Internet access with outstanding customer support. Tucows’ mobile services enabler (MSE) platform provides network access, provisioning and billing services for mobile virtual network operators (MVNOs). OpenSRS (https://opensrs.com), Enom (https://www.enom.com) and Ascio (https://ascio.com) combined manage approximately 26 million domain names and millions of value-added services through a global reseller network of over 36,000 web hosts and ISPs. Hover (https://hover.com) makes it easy for individuals and small businesses to manage their domain names and email addresses. More information can be found on Tucows’ corporate website (https://tucows.com).

Tucows Inc.
Consolidated Balance Sheets
(Dollar amounts in thousands of U.S. dollars)
		June 30,			December 31,
			2021			2020
		(unaudited)			(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	7,258		$	8,311
Accounts receivable			14,811			15,540
Inventory			2,836			1,875
Prepaid expenses and deposits			19,637			16,845
Derivative instrument asset, current portion			1,704			3,860
Deferred costs of fulfillment, current portion			96,148			93,467
Income taxes recoverable			4,041			1,302
Total current assets			146,435			141,200
Deferred costs of fulfillment, long-term portion			18,490			17,599
Derivative instrument asset, long-term portion			83			-
Investments			2,012			-
Deferred tax asset			168			226
Property and equipment			144,187			117,530
Right of use operating lease asset			12,541			11,238
Contract costs			617			362
Intangible assets			42,695			47,444
Goodwill			116,304			116,304
Total assets		$	483,532		$	451,903
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	7,430		$	6,329
Accrued liabilities			14,003			10,235
Customer deposits			15,812			15,402
Derivative instrument liability, current portion			110			99
Operating lease liability, current portion			2,270			1,761
Deferred revenue, current portion			130,094			127,336
Accreditation fees payable, current portion			958			940
Income taxes payable			20			863
Total current liabilities			170,697			162,965
Derivative instrument liability, long-term portion			-			114
Deferred revenue, long-term portion			24,766			24,909
Accreditation fees payable, long-term portion			183			195
Operating lease liability, long-term portion			10,202			9,179
Loan payable, long-term portion			139,867			121,733
Other long-term liability			3,607			3,416
Deferred tax liability			23,386			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; 10,665,514 shares issued and outstanding as of June 30, 2021 and 10,612,414 shares issued and outstanding as of December 31, 2020			23,457			20,798
Additional paid-in capital			2,208			1,458
Retained earnings			84,062			80,106
Accumulated other comprehensive income (loss)			1,097			2,336
Total stockholders' equity			110,824			104,698
Total liabilities and stockholders' equity		$	483,532		$	451,903

		Tucows Inc.
		Consolidated Statements of Operations and Comprehensive Income
		(Dollar amounts in thousands of U.S. dollars)
		Three months ended June 30,						Six months ended June 30,
		2021			2020			2021			2020
		(unaudited)						(unaudited)
Net revenues	$	75,093		$	82,122		$	145,968		$	166,107
Cost of revenues:
Direct cost of revenues		49,133			51,790			95,320			104,978
Network expenses (*)		3,612			2,485			6,850			4,901
Depreciation of property and equipment		4,084			3,030			7,722			5,907
Amortization of intangible assets		24			326			323			680
Impairment of property and equipment		1			1,525			61			1,525
Total cost of revenues		56,854			59,156			110,276			117,991
Gross profit		18,239			22,966			35,692			48,116
Expenses:
Sales and marketing (*)	$	9,376		$	9,218		$	17,687		$	18,203
Technical operations and development (*)		3,170			3,067			6,302			5,818
General and administrative (*)		5,210			5,465			10,163			10,206
Depreciation of property and equipment		127			125			248			238
Loss on disposition of property and equipment		5			-			5			-
Amortization of intangible assets		2,322			2,504			4,642			5,451
Impairment of definite life intangible assets		-			1,431			-			1,431
Loss (gain) on currency forward contracts		63			(381	)		(190	)		60
Total expenses		20,273			21,429			38,857			41,407
Income from operations		(2,034	)		1,537			(3,165	)		6,709
Other income (expenses):
Interest expense, net		(1,003	)		(846	)		(1,939	)		(1,996	)
Gain on sale of Ting customer assets, net		4,808			-			10,203			-
Other expense, net		(83	)		(85	)		(179	)		(172	)
Total other income (expenses)		3,722			(931	)		8,085			(2,168	)
Income before provision for income taxes		1,688			606			4,920			4,541
Provision for income taxes		(119	)		449			964			1,550
Net income for the period		1,807			157			3,956			2,991
Other comprehensive income, net of tax
Unrealized income (loss) on hedging activities		248			1,114			616			(120	)
Net amount reclassified to earnings		(1,021	)		200			(1,855	)		243
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		(773	)		1,314			(1,239	)		123
Comprehensive income, net of tax for the period	$	1,034		$	1,471		$	2,717		$	3,114
Basic earnings per common share	$	0.17		$	0.01		$	0.37		$	0.28
Shares used in computing basic earnings per common share		10,633,601			10,567,382			10,625,748			10,589,806
Diluted earnings per common share	$	0.17		$	0.01		$	0.37		$	0.28
Shares used in computing diluted earnings per common share		10,797,921			10,653,527			10,794,523			10,684,304
(*) Stock-based compensation has been included in expenses as follows:
Network expenses	$	144		$	109		$	269		$	196
Sales and marketing	$	550		$	374		$	1,056		$	745
Technical operations and development	$	234		$	183		$	401		$	350
General and administrative	$	281		$	179		$	505		$	356

	Tucows Inc.
	Consolidated Statements of Cash Flows
	(Dollar amounts in thousands of U.S. dollars)
		Three months ended June 30,						Six months ended June 30,
		2021			2020			2021			2020
Cash provided by:		(unaudited)						(unaudited)
Operating activities:
Net income for the period	$	1,807		$	157		$	3,956		$	2,991
Items not involving cash:
Depreciation of property and equipment		4,211			3,155			7,970			6,145
Impairment of property and equipment		1			1,525			61			1,525
Amortization of debt discount and issuance costs		67			67			134			134
Amortization of intangible assets		2,346			2,830			4,965			6,131
Net amortization contract costs		(248	)		95			(255	)		124
Impairment of definite life intangible assets		-			1,431			-			1,431
Other		-			223			-			223
Accretion of contingent consideration		95			85			191			172
Deferred income taxes (recovery)		(660	)		(917	)		(880	)		(1,107	)
Excess tax benefits on share-based compensation expense		(372	)		(164	)		(544	)		(344	)
Net Right of use operating assets/Operating lease liability		174			291			229			112
Loss on disposal of domain names		-			2			1			15
Loss (gain) on change in the fair value of forward contracts		191			(436	)		357			(88	)
Stock-based compensation		1,209			847			2,231			1,648
Change in non-cash operating working capital:
Accounts receivable		1,057			401			729			2,552
Inventory		(519	)		900			(961	)		1,804
Prepaid expenses and deposits		(5,058	)		(3,247	)		(2,792	)		(3,222	)
Deferred costs of fulfillment		539			(2,204	)		(3,572	)		(5,057	)
Income taxes recoverable		(2,345	)		294			(3,034	)		794
Accounts payable		568			(1,521	)		2,019			250
Accrued liabilities		2,975			2,165			3,768			334
Customer deposits		285			336			410			394
Deferred revenue		(2,734	)		2,655			2,615			5,997
Accreditation fees payable		(71	)		(31	)		6			54
Net cash provided by operating activities		3,518			8,939			17,604			23,012
Financing activities:
Proceeds received on exercise of stock options		1,247			29			1,476			46
Payment of tax obligations resulting from net exercise of stock options		(80	)		(165	)		(298	)		(347	)
Repurchase of common stock		-			(164	)		-			(3,281	)
Proceeds received on loan payable		18,000			-			18,000			-
Payment of loan payable costs		(1	)		(7	)		(1	)		(32	)
Net cash (used in) provided by financing activities		19,166			(307	)		19,177			(3,614	)
Investing activities:
Additions to property and equipment		(21,661	)		(12,150	)		(35,605	)		(22,093	)
Acquisition of Cedar Holdings Group, net of cash of $66		-			-			-			(8,770	)
Acquisition of intangible assets		(63	)		(69	)		(217	)		(69	)
Investment in securities		(2,012	)		-			(2,012	)		-
Net cash used in investing activities		(23,736	)		(12,219	)		(37,834	)		(30,932	)
(Decrease) increase in cash and cash equivalents		(1,052	)		(3,587	)		(1,053	)		(11,534	)
Cash and cash equivalents, beginning of period		8,310			12,446			8,311			20,393
Cash and cash equivalents, end of period	$	7,258		$	8,859		$	7,258		$	8,859
Supplemental cash flow information:
Interest paid	$	995		$	686		$	1,940		$	1,840
Income taxes paid, net	$	3,415		$	1,243		$	5,796		$	2,200
Supplementary disclosure of non-cash investing and financing activities:
Property and equipment acquired during the period not yet paid for	$	212		$	635		$	212		$	635
Fair value of shares issues for acquisition of Cedar Holdings Group		-		$	-		$	-		$	2,000
Fair value of contingent consideration for acquisition of Cedar Holdings Group		-		$	7		$	-		$	3,072

Reconciliation of Adjusted EBITDA to Income before
Provision for Income Taxes
(In Thousands of U.S. Dollars)		Three months ended June 30,					Six months ended June 30,
(unaudited)		2021 (unaudited)		2020 (unaudited)			2021 (unaudited)		2020 (unaudited)
Adjusted EBITDA	$	11,158	$	12,175		$	23,881	$	24,856
Depreciation of property and equipment		4,211		3,155			7,970		6,145
Impairment and loss on disposition of property and equipment		6		1,525			66		1,525
Amortization of intangible assets		2,346		2,830			4,965		6,131
Impairment of definite life intangible assets		-		1,431			-		1,431
Interest expense, net		1,003		846			1,939		1,996
Accretion of contingent consideration		95		85			191		172
Stock-based compensation		1,209		847			2,231		1,648
Unrealized loss (gain) on change in fair value of forward contracts		191		(436	)		357		(88	)
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities		42		441			106		399
Acquisition and other costs1		367		845			1,136		956
Income before provision for income taxes	$	1,688	$	606		$	4,920	$	4,541
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